A deductible is an out-of-pocket cost an individual must pay before a health plan covers any expenses. When choosing health insurance, most individuals are faced with a choice between low-deductible and high-deductible health plans. Many view high deductible health plans in a negative light, but they can be beneficial in certain circumstances. What are they exactly and where did they come from? Let’s take a closer look.
What are High Deductible Health Plans?
As one might expect, high deductible health plans are plans that kick in at a higher cost. If your deductible is $2,000 (the median annual deductible for private industry workers), you’ll have to pay all health costs (with some exceptions protected under various laws) up to that amount before your coverage is activated.
For example, let’s say that you have to go to the emergency room after a car accident. Your medical expenses, which include surgery and post-op care, quickly exceed $2,000. In this case, you would be responsible for that amount alone, and anything over it would likely be covered by your plan. However, some plans also come with out-of-pocket maximums, copays (specific dollar obligations), or coinsurance (% of costs) meaning you have to spend a separate amount before an insurer covers all costs.
On the other hand, perhaps you need to visit a specialist for a minor procedure like stitches. The final bill comes to about $300. With a high-deductible health plan, you’d have to pay the full cost of insurance carrier’s pre-negotiated rate for the visit.
When Did HDHPs Become Popular? Who Benefits from Them?
U.S. citizens used to count on their employer for quality healthcare plans that covered most of their costs. However, from the 1970s to the 1990s, the cost of care increased dramatically. For this reason, employers had to start seeking out more inexpensive options for their staff. HSAs (Health Savings Accounts) were established in 2003 as an add-on for those enrolled in HDHPs. This helped individuals save for medical costs that fell below the deductible amount.
Most people choose high-deductible plans to lower the cost of their monthly premium. Young people with no immediate medical needs might opt for this type of plan, assuming they won’t need care often. While HDHPs always come with a certain degree of risk, they’re still preferable to having no coverage. They’re also useful for anyone who can’t afford high health insurance payments every month. Today, HDHPs are slowly becoming the norm. The availability of HDHPs for employees participating in health plans rose from 24% in 2010 to 45% in 2018…and continues to rise.
How Do They Work with Health Savings Accounts (HSAs)?
HSAs allow employees and employers to contribute tax-free dollars to use for approved out-of-pocket expenses. Individuals can then use these funds in conjunction with their high-deductible health plan – so long as the HDHP is a QUALIFIED HDHP (QHDHP). In an HSA, the money grows tax-free and can come out tax-free if it is used for qualified expenses.
With an HSA, you can still enjoy a lower monthly premium for the insurance, but you don’t have to worry about surprise medical costs if you have saved enough in your HSA to cover the deductible.
An HSA balance rolls over annually, allowing participants to accrue a larger amount over time. Many banks will allow participants to invest the money and earn higher interest than a general savings account.
HSA’s are also portable which means that if a person were to change jobs, the HSA can go with them. You can also open an HSA at any bank that offers them and contribute money to it, as long as you maintain a QHDHP and stay within the annual contribution limits.
What are other strategic ways of leveraging HDHP?
In addition to HSAs, employers, and employees can benefit from other strategies including Health Reimbursement Arrangements (HRAs) and Medical Expense Reimbursement Plans (MERPs). You should consider the features and benefits of each strategy before implementing.
Collaborate with TriBridge Partners to Learn More About High Deductible Health Plans
Are you planning to offer your employees high-deductible health plans? TriBridge Partners is ready to help! To discover how our experts can assist your organization or business, please call our office today at 240-422-8799, email Jessica Storck at Jessica.storck@tribridgepartners.com, or find us on Linkedin.
