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Cashing out

Healthcare | As insurance costs soar, some patients and doctors turn to options that give them more control and responsibility

Issue: "Big mouth on campus," March 12, 2005

Last fall, Anita Palmer faced a fork in her career path. A single mom of a 10-year-old son, Ms. Palmer had been working 20 hours a week as a media relations coordinator for Point Loma Nazarene University in San Diego. She was also nurturing a growing freelance editing business and dreamed of working from home and building her work schedule around the needs of her son, Benjamin. Her university job, however, paid 65 percent of their health-care premiums and, as Benjamin's sole supporter, Ms. Palmer worried about giving that up.

Then in October, Point Loma offered Ms. Palmer a full-time position. That meant more time away from her son and her editing business, but it also meant full health coverage. "I was at a point whether I could either accept the offer of a full-time job, or turn another direction and work toward 100 percent self-employment, trying to cobble together enough health-care coverage," Ms. Palmer said. "I would've preferred to work from home, 100 percent self-employed . . . but the determining factor was health insurance."

Having to lash her career decision to the cost of health care was frustrating, Ms. Palmer said. "Although I know I'm in the same position as thousands of people, it makes you feel somewhat helpless concerning your own future."

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Americans spent $1.6 trillion on health care in 2002, a price tag that's expected to double by 2013, according to the Employee Benefits Research Institute. Among workers not covered by government medical plans, nearly half in an EBRI survey said increased health-care costs had forced them to decrease contributions to savings plans; another quarter said they had used most of their savings paying for health-coverage hikes. One in four Americans said they or an immediate family member had passed up a career opportunity, delayed retirement, or stayed at a job they would have quit, solely to keep their health insurance.

Several forces are working to drive up health-insurance costs. One is a growing number of medical malpractice lawsuits, which have led to increases in malpractice premiums, which in turn contribute to rising health-care costs. As more physicians are forced to give up treating patients or are driven out of business altogether, patient access to medical treatment increasingly is limited. In January, President Bush called on Congress to pass a law that would rein in frivolous malpractice lawsuits while capping damage awards at reasonable sums.

But another problem is that, with the current insurance system, people do not have an incentive to price shop for medical care. This leads to higher prices that eventually get passed on to everyone in the form of higher premiums. That could be changing, though, with new ways to pay for medical treatment-including tax-advantaged accounts, association health plans, and cash-only clinics-freeing consumers to choose alternatives to the stratospheric premiums and treatment restrictions that mar traditional health plans.

This January marked one year since the Health Savings Accounts (HSAs) established as part of the Medicare Act of 2003 became available to consumers. HSAs are interest-bearing bank accounts that allow individuals and families to save pre-tax money for medical expenses. Financial institutions such as banks offer the accounts, which are linked with high-deductible health-insurance plans offered by mainstream insurers. (For example, J.P. Morgan Chase offers HSAs for Blue Cross Blue Shield of Wisconsin.)

Because of the high deductible on the health-insurance component of HSAs-on average, $1,000 for an individual or $2,000 for a family-monthly premiums are often less than half of the amount those insurers charge for traditional co-pay plans. Workers may deposit annually an amount equal to their health plan's deductible, to a limit of $2,600 for individuals, and $5,150 for families. (In 2005, contribution maximums will be indexed to the cost of living.) Account holders then treat their health insurance as they would insurance for their auto or home, paying for routine expenses out-of-pocket or using money they've saved. In the event of a catastrophic medical need, workers can use money saved in the HSA to cover the linked health-plan deductible. Then, as with traditional plans, insurance coverage kicks in.

By September 2004, about 440,000 Americans had signed up for HSAs, according to America's Health Insurance Plans, an insurance industry group. From an investment standpoint, advocates of the accounts say they're a triple threat to the status quo: Deposits aren't taxed, interest earnings aren't taxed, and withdrawals are also tax-free, as long as they're used for medical expenses. Funds left unused at the end of each year can roll over and continue to grow tax-free.

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