Apples & Oranges – Comparing HSAs to Insurance

I was thinking about Health Spending Accounts, like I always do, and thought I would write a blog entry to clearly articulate the differences between HSAs and traditional insurance.  I thought this would be a valuable tool for consumers considering an HSA over an insured plan.  Here we go…

Insurance

Places limits on coverage to a defined maximum.  Some plans allow you to have a higher limit for a higher premium.

Health Spending Account

There are no limits in terms of specific coverage.  If you are incorporated and have a Health and Welfare Trust, the amount you can contribute is unlimited.  If you are unincorporated, you are entitled to limits based on the number of dependents eligible from your Private Health Services Plan.  Either way, you are not limited to a specific amount of coverage, you can allocate the funds to whatever healthcare costs you see fit.

Insurance

Requires a premium to be paid.  This premium is equal to the true cost of claims plus 20-30% to allow for risk factored into the plan to ensure profitability for the insurer. 

Health Spending Account

The premium is really a deposit structure equal to the true cost of claims plus 10% to cover administration of the plan.  These costs are fixed.

Insurance

The cost of the premium is defined by the insurer and can be increased at their discretion based on claims from the previous year.

Health Spending Account

The cost of the plan is driven by the consumerand there are only increases if the HSA owner wishes to deposit more money into their account.

Insurance

The plan covers immediate dependents only such as spouse and children under age 18.

Health Spending Account

These plans cover any dependent related to the account holder by blood or marriage, regardless of age, as long as they are financially reliant on them in a given year.

Insurance

These plans may limit coverage to within Canadarequiring a supplemental travel policy for out of country health care expenses.

Health Spending Account

The funds in the account can be used to reimburse claims globally provided it is an eligible expense in their home province.

Insurance

The premium paid cannot be reimbursed and is lost at the end of the year.  If no claims are made, the insurer keeps all of the premium.

Health Spending Account

The funds in the HSA roll-over to the next year and are not lost.  Note:  This applies to a Health and Welfare Trust.  If you have a Private Health Services Plan the funds are lost after 2 years from date of deposit if not spent.

Insurance

The plans do not cover all procedures and drugs. 

Health Spending Account

Funds in the account can be used to cover all drugs and treatments prescribed, dispensed, and performed by a medical practitioner including smoking cessation, fertility treatments, and elective surgery.

Insurance

These plans require basic medical underwriting and do not cover pre-exisitng conditions.

Health Spending Account

There is no medical required and the funds can be used to cover pre-existing conditions.