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September 21, 2005
Health Insurance changing with Health Savings Accounts
Insurance is designed to pay for unexpected expenses that you could not afford to cover. A couple examples:
People buy car insurance to pay if their car gets wrecked or stolen. Car insurance does not cover oil changes or new tires.
People buy home-owners insurance to cover them in case there house burns down, or if they incur some other large unexpected expense related to their home. Home owners insurance does not pay to have the house repainted, or to pay for broken light bulbs.
Traditionally, health insurance was the same thing - insurance to pay for large unexpected expenses. However, during wage freezes in World War II, companies were not allowed to raise pay to attract better workers. They were allowed to offer un-taxed benefits, such as health insurance.
Thus health insurance through a company received a much bigger tax advantage than insurance purchased on one's own, and company-sponsored health insurance became the norm. Since buying anything with pre-tax dollars makes it a much better deal, health insurance plans also became benefit-rich. People came to expect coverage that left them just a few dollars out-of-pocket for doctor visits or prescription drugs.
A lack of consumerism in the healthcare marketplace has since allowed costs to skyrocket out of site. Adoption of Health Savings Accounts may soon change all of that. Hundreds of thousands of people spending their own (tax-free) money on doctor visits and prescription drugs will provide some strong market forces. Those who can offer the best health results for the least amount of money, win. As it should be.
Posted by Wiley Long at September 21, 2005 07:42 AM