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Is the HSA right for doctors with young children?

It's October. That means it's open season for employer benefits enrollment. Today's question is a darned good one, about health insurance and HSA's...

Question:

We're debating the merits of the health insurance options at work, and wondered if you could weigh in on what you think might be best. We currently have the best first-dollar plan available to us through our employer, I believe.

With small children, I do spend a fair amount of time in the doctor's office in the winter. Our co-pays are currently $30/visit. So far, this year, we've paid about $5K out of pocket, due in large part to an unexpected hospitalization for one of our children who had pneumonia last winter and the cost of medications. In the past, we've had some elective medical expenses and anticipate more before the end of 2011. Not sure if an HSA covers those. There is a possibility for more elective expenses in 2012. I feel like we shouldn't be paying as much out of pocket as we do, but perhaps I'm just not certain.

What do you think?

Answer:

There's a ton of confusion around HSA's so let's start by defining some terms. The Health Savings Account is just a bank account (sometimes a brokerage account) that has nice tax benefits. But you can only contribute to the HSA if you're covered by a High Deductible Health [insurance] Plan (HDHP).

When you're deciding to go with a traditional first-dollar plan or to do the HSA/HDHP combo, you're making a cost/benefit decision. So you have to ask yourself, "Does the benefit outweigh the cost?"

What's the benefit?

First, there's a tax benefit. Here's how you can figure it:

  • The maximum HSA contribution for a family plan in 2012 is $6,250.
  • Many physician families pay taxes in the 35% marginal bracket, and the highest state bracket, so let's call that 40%.

This means contributing to an HSA will save you about $2,500 in 2012 (40% of $6,250).

Next, the HDHP insurance coverage may cost you less than the first-dollar coverage if you yourself have to pay for your coverage. If your employer pays for all of it, then there's no benefit here.

Finally, some medical practices will also contribute cash to your HSA. Check your employee benefits booklet to see if yours does.

What's the cost?

The obvious cost is the added out-of-pocket expense for medical care, above and beyond what you might pay for first-dollar coverage (like co-pays, etc.).

The less-than-obvious cost comes from that nagging feeling you get every time you start to feel sick but you hesitate to go to the doctor because it costs money. We're not talking about that funny insurance company money anymore though. It's real money--because it's yours--and you might really not go, or you might go later when your symptoms are more severe. Ouch.

Though it's not a true financial cost, you might as well include the added headache of managing one more account--your Health Savings Account that is.

The answer depends on your family situation.

To find the exact answer, I think you'd need both a crystal ball and a degree in actuarial science. But you can easily rule out the HSA/HDHP combo if you or someone in your family has a chronic health issue or you expect higher health expenses due to elective treatment in the coming year.

In this particular case, the HSA/HDHP combo is probably not the best choice. But remember, you can (should) make this decision every year during open enrollment season. If you get the wrong answer this year, you can try again in October of 2012.

Use your HSA to defer taxes.

If you do go with the combo, don't spend your HSA money on medical expenses (yet). This may sound like odd advice but you have to remember that HSA money grows tax-deferred forever practically, and you can spend it on medical expenses decades from now without paying taxes, so it's one of the best tricks you can use to trim your tax bill. Instead, pay your health expenses from your checking account, and tell yourself that its just like writing a check to your HSA.

By the way, I'm working on a column for the November/December issue of Ophthalmology Business focused on tax tips just for physicians, so keep your eye out for it (no pun intended).

What impact will the new ACO's have on physicians and patient health?

This is about two weeks old but still very early in its developmental stages (hey, I was dealing with tax season!). If Congress doesn't gut the funding for it, the program will have a significant impact on physicians and patients. Let's hope it's a win for both.

Donald M. Berwick M.D., the dministrator of the Centers for Medicare & Medicaid Services (CMS), gives his perspective on Accountable Care Organizations (ACO's) in this New England Journal of Medicine article: "Launching Accountable Care Organizations The Proposed Rule for the Medicare Shared Savings Program."

Here's the overview to help you get started:

Section 3022 of the Affordable Care Act (ACA) establishes the Medicare Shared Savings Program for accountable care organizations (ACOs) as a potential solution.1 The creation of ACOs is one of the first delivery-reform initiatives that will be implemented under the ACA. Its purpose is to foster change in patient care so as to accelerate progress toward a three-part aim: better care for individuals, better health for populations, and slower growth in costs through improvements in care. Under the law, an ACO will assume responsibility for the care of a clearly defined population of Medicare beneficiaries attributed to it on the basis of their patterns of use of primary care. If an ACO succeeds in both delivering high-quality care and reducing the cost of that care to a level below what would otherwise have been expected, it will share in the Medicare savings it achieves. Read the full article.

What do you think about ACO's?

The Frustrated Physician: Should you get out, or get involved?

Vineet Arora, MD MAPP at the Future Doctors Blog tells the story of two physicians who shared their frustrations about the practice of modern medicine. Rather then get out of the field, they decided to get involved. Read Vineet's post about physician advocy.

Advising Doctors | Financial Advisor Magazine quotes W. Ben Utley, CFP®

Financial advisors who are thinking about tailoring their practice to deliver financial planning for doctors should consider the points Andrew Gluck makes in this article. The niche is deep, requires commitment and a way of doing business that is different from serving the masses. Commenting on the changing dynamics of the industry, Certified Financial Planner® W. Ben Utley explains how recent changes in reimbursement have forced some medical specialists to join hospitals and multi-specialty practice groups.

Why might physicians need a medical practice broker?

I'm always on the lookout for resources to help the physician families, so when I got an introductory letter from David Greene, the owner at Medical Practice Brokers in Colorado Springs, Colorado, I gave him a call and asked a few questions. Why would a doctor need a medical practice broker? After all, you know more about your practice than anybody else. And how hard could it be to sell what you know everything about?

The simple answer is that you'll probably only sell one practice in your whole life, and selling a medical practice is a complex task with a litany of financial, legal, tax impacts, not to mention the career aspects. A good medical practice broker lets you keep doing what you need to do (run your practice) while they handle the details of selling your practice, including:

  • packaging detailed information about your business,
  • setting a price,
  • finding and screening buyers,
  • setting up financing, and
  • coordinating attorneys, accountants, lenders, real estate appraisers, and other financial advisors.

And the ultimate reason you need a medical practice broker is that you've never done this before but they have. Like surgery, if you don't do it all the time, you should choose a professional who does.

How do you know when you need a medical practice broker? Simple. When you find yourself in a situation where you need to know what your practice is worth, that's when you call a medical practice broker. For instance, you're getting divorced, and the value of your practice is in question. Or maybe you're planning to retire and you want to maximize the value of your business and make sure you sell it for top dollar. Or, maybe you're new to practice and you want to buy a practice rather than starting from scratch.

What makes a good medical practice broker? David says experience matters (he has 12 years of experience and tons of contacts) and a specialty that transcends mere business brokerage to focus exclusively on medical practice sales and valuations. David says his firm is among fewer than a dozen practice brokerages here in the United States that focus exclusively on physician medical practices.

While there seems to be no "gold standard" of accreditation for business brokerage (like "MD" for medical doctors), you can look for training and accreditation specific to business valuation and sales, including these credentials:

  • Certified Business Intermediary (CBI)
  • Certified Public Accountant (CPA)
  • Masters of Business Administration (MBA)
  • Certified Valuation Analyst (CVA)
  • Accredited Valuation Analyst (AVA)
  • Real estate broker's license

In addition to these, look for a broker who has strong communications skills and a rock solid reputation since they'll be speaking for you and dealing with multiple parties on your behalf.

Are you thinking about starting or buying a practice? David also owns PracticeWorld.com, a "one-stop marketplace for healthcare professionals to buy, sell, look for financing, advertise, manage, or start a medical-related practice."