Opinion: 3 ways to offset the rising costs of health care

Published: Nov 11, 2019 12:40 p.m. ET

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Weighing your options during open enrollment

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By

E.Craig Keohan

As health care costs continue to rise, consumers are seeking new strategies to save and offset the rising costs of coverage. Health savings accounts (or HSAs) have been around since 2003, but many consumers, employers and benefits professionals still do not fully understand the advantages of an HSA as a way to hedge against high deductibles and save for the future.

Another health care funding account, the individual coverage health reimbursement arrangement (ICHRA), will become available in January of 2020, offering employees and employers a new way to save by dramatically increasing choice. And as prescription discount cards increase in popularity, consumers may be able to skip prescription coverage and pay lower out-of-pocket costs. So how can you best leverage available resources to reduce health care costs and help alleviate the anxiety related to the (potential) major impact of future health-related expenses? Read on to find out more.

Health savings accounts

Even as health care expenses continue to rise, you can take a huge step in offsetting those increases by using HSAs to pay for your medical costs. Because of their unparalleled tax savings, HSAs are the best way to keep money in your pocket and out of Uncle Sam’s.

HSA contributions are tax-free at the federal and state levels (in almost every state), and contributions via payroll withholding can save an extra 7.65% on top of that. First, if you use your health savings account funds to pay for out-of-pocket expenses, you could save 25% to 30% off the expense by using tax-deductible dollars. In addition, HSA interest and investment earnings are tax-free, and so are withdrawals for qualified medical expenses. This means account holders save more money with health savings accounts than with any other way of paying for health care costs.

Not only can health savings accounts help you save on your current medical expenses, but they can also play an important role when you retire. One of the most significant costs retirees will face are out-of-pocket medical expenses; in fact, a recent HealthView study found that the average healthy 65-year-old couple could pay up to $387,644 in non-Medicare-covered health care costs. If you pay for those costs with a 401(k) or IRA, you would also have to pay taxes on them. But by investing your health savings account funds long term, you can accumulate a medical nest egg to pay for those expenses tax-free. This means you could save hundreds of thousands of dollars just by refining your retirement strategy.

However, it is important to note that all HSAs are not alike. Some HSA providers require a minimum cash balance before an account holder can start investing, some charge transaction fees and some offer mutual funds with high expense ratios. If you are looking to leverage an HSA to its best financial use, be sure to check the fine print so you can find the best option to fit your needs.

Health care costs may keep increasing, but an HSA provides significant tax savings and the ability to grow your health care dollars tax-free. Check with your employer to find out if you are eligible for a health savings account.

Individual coverage reimbursement arrangements (ICHRAs)

A new type of health coverage offers some real potential for employees to lower their out-of-pocket costs by giving them greater choice among plans. Rules allowing individual coverage health reimbursement arrangements (ICHRAs) go into effect on Jan. 1, 2020. With an ICHRA, the employer allocates a monthly allowance for an employee to use to access coverage on open exchanges. All reimbursements through the ICHRA are free from payroll and income tax.

The primary benefit is that an employee will be able to shop for the ideal insurance package to meet their specific needs rather than choose from the limited offerings most employers are able to present. This could save employees money in a number of ways.

First, the employee has a much wider range of options to choose from so those who, for example, need coverage for a certain prescription drug, can choose the plan that gives them the lowest cost option for that particular drug.

Likewise, people requiring specific medical services or treatments like acupuncture could find a plan that offers the best coverage for holistic medicine.

And employees choosing out-of-network providers will be able to purchase plans that make it possible without additional cost.

The current administration projects that 800,000 employers could use ICHRA to provide health benefits for 11 million people. A critical component of the ICHRA process will be functional electronic health care exchanges that offer a variety of plans at competitive prices so employees can “shop” for the best options. As long as enough options are available for individual coverage, the ICHRA is a simple, flexible tax-free solution to manage health care costs.

Discount cards

Prescription drug costs are among the costs frequently cited in the ballooning cost of health care coverage. According to the Kaiser Family Foundation, one in four people taking prescription drugs report difficulty affording their medication. Problems with affordability have given rise to the prescription discount card industry.

There are multiple Rx discount cards that can save consumers hundreds of dollars. For example, I recently used my GoodRx card and in doing so, one script went from costing me $333 to $36 — an 89% reduction.

Similar to a grocery store coupon, a prescription card (or Rx discount card) provides discounts for prescription medication. Because prescription drug prices are not regulated, the cost of a prescription may differ between pharmacies across the street from each other. So how do you know where to go? Providers like GoodRx, WellCardRx, and many others allow customers to search for their prescription medication, dosage, quantity, and location range to see which nearby pharmacies accept the coupon and offer the lowest price. All that is left is to show the pharmacy your Rx card or coupon received by a method of your choice. Many Rx discount providers even offer an app to save coupons for later.

For the consumer, this is a free service. Rx discount card companies negotiate their own contracts with pharmacies. Rx cards can get consumers discounts of up to 80% on prescription drug prices and are available to everyone with or without health insurance. An Rx card is especially useful when your prescription is not covered by the health plan, or if you have exceeded your plan’s limit. Please note however, that it cannot be used in combination with insurance, only in lieu of it. Before picking up your next prescription, see if an Rx discount card could help you save on the rising cost of prescriptions.

E. Craig Keohan is the chief revenue officer of HealthSavings Administrators, a provider of HSAs.

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