Jun 12

What Are High-Deductible Health Plans? Who Do They Hurt?

health insurance Last week at work we had a meeting with Human Resources. The purpose of the meeting? To tell employees that our organization (a large non-profit) can no longer keep our current health insurance plan because of the cap the feds put on the amount of money non-profits can spend on fringe benefits (don’t get me started on this one, I’ll address that “issue” at another time).

This of course caused a great deal of anxiety and frustration within the organization. Most people (myself included) didn’t know exactly what a high-deductible health plan was, or how it was any different from our current plan.

Here’s my current insurance situation:

Currently my organization has standard health insurance. Basic services like preventative care (yearly physical exam, yearly gynecological exam, children’s wellness visits and vaccinations) are all covered in full and have no co-pay. If you visit a specialist or need to see your regular PCP for an emergency office visit (flu, ear infection etc.) you pay a $25 co-pay ($40 for the specialist). If you go to the ER you pay $100 co-pay. The rest of the bill is paid in-full by the insurance company directly to the provider.  My company currently pays part of the cost of the plan and I pay the rest directly out of my bi-weekly paycheck (right now, about $120 per month).

Here’s what my insurance will look like (high-deductible) on July 1st:

Basic preventative care (yearly physical exam etc.) will be covered in full by the insurance company. Any other service including emergency visits to my PCP’s office, emergency room care, and non-routine care i.e. I get sick and need to go to the doctor, will be paid for by me in full out of pocket. Once I meet my deductible, $1,250,  my health insurance will “kick in” and begin paying for anything above that amount. Let’s say for example I end up in the emergency room on July 2nd. The bill is $10,000. The hospital sends the bill directly to me. I pay $1,250 out of pocket to the hospital and the remainder of the bill, $8,750, is paid by the insurance company.

What’s the difference between “regular” health insurance and my new high-deductible plan?

Well a couple of things. Instead of the regular $120 that comes directly out of my pay each month, I’ll now only be paying about $30 per month. Sounds like a good deal right? More money in my paycheck is never a bad thing. In addition, my employer will be depositing money $16 per paycheck into a Health Savings Account (HSA) on my behalf. Over the course of a year they will give me about $430. That $430 I can use to pay for any eligible health care expenses. Curious what qualifies? The IRS has a 35 page pdf explaining that here.

The Good, the bad and the ugly…Who this plan hurts!

  • The good: For young, relatively healthy folks like myself (knock on wood). I usually only attend my regular preventative visits. Once in a while I have an emergency visit to the MD’s office for the flu etc. but those visits shouldn’t total more than the $430 my company will be contributing to the HSA over the course of the year for me. Additionally, I can (and will) automatically contribute the $120 per month I used to pay towards my old plan directly to my HSA. I’m not used to having that money in my check, so I won’t miss it. If I don’t use the money in put in the HSA this year, it will roll to next year. It will also travel with me if I move to another company.
  • The bad: I can imagine myself (and many other people) not going to the MD when I’m sick because I don’t want to spend the money out of pocket. With my old plan, if I got sick it would cost me a $20 co-pay and possibly $10 co-pay for the medications I’d need. Now if I get sick I’m going to get billed for an office visit (I suspect at least $100) plus I’ll have to pay for the medication at full-price-no co-pay. If, god forbid, I get hit by a bus on July 2nd, I’ll have to foot the bill for the ER visit to the tune of $1,250. Not great, but I have the money in my emergency fund (and soon my HSA) so it’s not the end of the world.
  • The ugly: High deductible plans hurt low-income earners! Take the bus scenario I listed above and imagine you don’t have $1,250 just lying around in your emergency fund. Imagine you live paycheck to paycheck and end up needing emergency surgery. 2 weeks later you get the bill in your mailbox. You don’t have the money to pay the bill so you ignore it. A few months later, the bill goes to collections and ruins your credit.Yes I understand it’s “only” $1,250, but many people don’t have that kind of money saved for emergencies, especially low-income earners. If you’re struggling to keep food on the table and pay your light bill, saving in your HSA probably falls pretty low on your immediate priority list.

Are you happy with your health insurance? Do you avoid going to the MD because it’s cost prohibitive?

 Image: TaxCredits.net

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  1. Mr PoP has a HDHP with HSA through his office and it was actually the option we chose intentionally. He could have had a traditional PPO plan like the one I have at my office, but it would have been significantly more expensive and he probably wouldn’t have used the care most of the time anyhow since he usually ends up at the doctor about once per year on average.
    I forget his exact deductible, but basically his employer contributes 50% of his deductible to the HSA every year. So after 2.5 years at his company, he has more than his entire deductible sitting in the HSA if we need it since he hasn’t had anything major happen.
    I tend to think that HDHPs are the way insurance is meant to function, to help provide a buffer when the poop hits the fan like car insurance or life insurance.

    Nicole and Maggie had a post on health insurance earlier this week, and the comments were good: http://nicoleandmaggie.wordpress.com/2013/06/10/what-is-the-purpose-of-medical-insurance/

    1. HDHPs do seem to be a “truer” form of insurance. HSAs only suck at the beginning and if you don’t contribute a dime. I have a friend who has a hospital bill that essentially maxed out his insurance this year, but he was young and invincible so he only has the $500 or so the employer has contributed to this point. Not a good idea.

      • KK on June 12, 2013 at 10:21 pm
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      Thanks for sharing that link. Health insurance is a hot topic these days with all the changes that are in the works. I’m not opposed to high deductible plans (in fact I think they make a lot of sense on some level). I do however worry about some of the lower income earners at my work and how they’re going to make all of this work.

  2. Luckily, I am in Canada. If I need to go to the doctor, I can and will for free. I don’t think high deductible health plans exist here!

      • KK on June 12, 2013 at 10:23 pm
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      There’s always so much talk about whether Canada and Western European countries and doing health care “right”. I guess there are arguments for both models. If all of this makes me nuts I’ll just cross the border 😉

  3. I believe research shows that co-pays and deductibles do in fact keep people from seeking medical attention when they should. For many, this dis-incentive to get early diagnosis and treatment leads to more costly, and perhaps less effective, treatment later. Just one of hundreds of reasons why U.S. healthcare is the most costly per capita in the world.

      • KK on June 12, 2013 at 10:24 pm
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      Agreed Kurt. If young and relatively healthy people like me are thinking twice about going to the MD because we don’t want to spend the money, I’d imagine there are much sicker individuals going without care to avoid the bills.

  4. Thanks for your insight. How do you think the Affordable Care Act will factor in, specifically?

    1. Since it sounds like KK’s organization will not opt to have their employees shop in the exchanges, it shouldn’t impact them in any material way.

        • KK on June 12, 2013 at 10:25 pm
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        You’re right DC, that wasn’t offered as an option/mentioned in the discussion at all.

  5. As if non-profits weren’t squeezed enough, I can’t believe there is a cap on fringe benefits. Non-profits already have a hard time competing for and retaining talent, but capping their benefits in a way that forces them to not be able to give you a desirable health plan is ridiculous.

    HSA’s can be a tough subject. I got kind of screwed this year and last year as I completely maxed out my insurance because of surgeries. My deductible is something like $2,500 and out of pocket max is $3,500. I had to pay $7k over the past two years :/ Thankfully now everything is free for the rest of the year.

    I will say this: I LOVE that HSA’s can help people save (and budget) for unexpected medical expenses. They suck when you are starting out, but if you contribute the max (which I know is difficult for many people, myself included) they roll over and NEVER go away. If you have a high enough balance you can even invest it in a few different ways. This is huge in my opinion, since it’s all tax-free and can be a great deduction on your taxes. It also is a “truer” form of insurance where you pay for smaller fees (I use smaller loosely here…it’s all relative as you pointed out) and you are protected from that $25k surgery bill.

    I should also say I work for a health insurance company in the US, but I in no way am representing them in this comment (or anything I post online!) and these opinions are my own. I also have no say/influence/etc. in sales or product offerings.

    I hope you continue to write about your thoughts/opinions/facts about health insurance. I love talking about it outside of work, since I get to hear what people truly think!

    1. I like this comment a lot. For most, health “insurance” is a pre-paid account that they mostly use on routine, foreseeable visits. This isn’t to say that there isn’t a huge benefit to preventative care and frequent checkups that can lead to early diagnosis… I’m just not sure what that incentive would be, or who would best create it. Oh health care :/

      • KK on June 12, 2013 at 10:32 pm
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      DC I’m always interested to read your comments (and posts) about health insurance because I know you know the inner workings of all of this. I don’t know much about the new laws, but apparently last year we were over the limit for health care spending and the feds gave us an exemption to continue our health plan for the year. This year it’s a no go.

      In the grand scheme of things, I don’t think much will change in terms of how I access health care (as long as I don’t get sick before I max out my HSA). I am however, really concerned about my lower paid and/or less informed co-workers (many of whom didn’t understand the plan and were stating that they were going to “opt out” of the insurance plan). When HR told them they actually couldn’t be uninsured and would have to take one of the plans or be covered independently or through a spouse’s plan they seemed flabbergasted.

      1. Probably the biggest issue with the health care reform law is that people are uninformed. As you said, people were shocked that they were “required” to get insurance. That is one of the most basic parts of the law, so I can’t imagine most people understand much of the law at all, nor would you want to spend time learning it if you didn’t have to!

  6. I have a few friends with high deductible plans where they have a $3k deductibles, which is really unfortunate because at times they reach it at the end of the year, only to have to pay into it again once the new year starts. I agree it hurts low income earners – perhaps companies can tier it so that low income earners have lower deductibles than higher earners? That’s how they tier our insurance contributions for my “regular” insurance and being somewhat in the middle, I think it’s fair.

      • KK on June 12, 2013 at 10:36 pm
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      I believe the deductible is the same for low and high income earners (in my plan) as mandated by the feds. I would be nice if my company could contribute more to the lower income earners’ HSA accounts to balance things out a little. $3k would be really unmanageable for most people who weren’t in a good financial place. I’d be super frustrated (that’s a nice way of saying it) if I knew I had to pay that much out of pocket.

  7. Thanks for the great article! It’s true that people with high deductibles tend to stay away from the doctor and hospitals because they don’t want the bill that comes with it. Unfortunately, as Kurt pointed out, this can lead to late diagnosis and higher costs when all is said and done.

    I appreciate you taking the time to write this article! Many people don’t understand their healthcare benefits very well, but your article lays it out in easy-to-understand terms. 🙂

      • KK on June 12, 2013 at 10:38 pm
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      Thanks Rachel. I’m just starting to learn how the high-deductible plans work. Like you and Kurt said the preventative care is great, but it’s the weird “little” things that pop up that aren’t checked that sometimes turn into big things. A little mole that you prevent having checked because you don’t want to pay out of pocket for an MD visit that ends up being skin cancer, etc.

  8. If you are able to build your HSA up to cover your deductible in a high-deductible plan they are soooo much better than regular health insurance. However, if you can’t reach that point and you keep having a lot of medical bills they can sink you pretty quick.

      • KK on June 12, 2013 at 10:40 pm
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      I’m going to max out my HSA as soon as it’s opened (july 1st). For me it’s not a huge deal and may actually end up saving me money (as long as I don’t get sick). But it can be a big of a gamble, esp if you don’t have the money saved to pay the deductible.

  9. I have had a high deductible plan and an HSA for years now. The biggest benefit to an HSA to me, is that you can roll over the balance every year. I contribute $125 per pay period (every 2 weeks) which maxes out my contribution for the year. My insurance costs me $42 per pay period. If I opted for the next highest (non deductible, non HSA) level, it would be $170 per month.

    I am saving money by going with the high-deductible and HSA plan and I have more control over where my health dollars are spent.

    Plus I get the tax break from the contributions to the HSA which, in some years have made the difference between owing tax and getting a refund.

      • KK on June 17, 2013 at 10:43 pm
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      Thanks for sharing your experience. The HSA does seem like the part of the plan that I’m really going to enjoy. I’m sure once I get used to the new plan I’ll like it better. It’s just a stark change for now.

  10. We have a high dedectible insurance plan and it mostly works for us. A lot of the reasons we go to the doctor are for preventive care so they are covered. We have no copays and with two teenagers now we expect to go to the hospital or something a few times per year (they both play sports). They way its worked so far with the money we save if we put it away we actually come out on top. At least thats how its worked so far.

      • KK on June 22, 2013 at 11:20 am
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      I think that’s basically how the plan will work for me too. I’ll probably actually come out ahead, baring any crazy accidents or illnesses.

  11. We actually chose a HDHP when we bought our insurance last year as it’s much more affordable for us. I can understand how it can impact some. That said, we have found that it has made us much smarter in terms of visiting the doctor so we’re not making needless visits which ultimately costs more. Ultimately, this system as a whole is so completely beyond messed up we’re just trying to make the best of it that we can.

      • KK on June 22, 2013 at 11:21 am
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      I hear ya John. It is what it is. I barely go to the doctor, so I’m not that shook up either way. I do however feel bad for the lower earners who this will likely hurt in a bigger way (because they don’t have any savings).

  12. My husband’s company has something similar to this, but the monthy deduction was still high. He cut his finger last year and since it didn’t stop bleeding, I took him to the emergency room out of panic. They basically cleaned it and put a bandaid on it. Our bill was $600.00. Yikes~ So I put him on my plan.

      • KK on June 22, 2013 at 11:23 am
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      Ugg, situations like that are definitely the things that hurt people. Then if he didn’t go to the doctor the rest of the year and didn’t meet the deductible you’re still out the $600. In some ways I think it encourages people to go to the MD more. “If I already spent $600, I may as well keep spending to get to to the deductible and see every MD I can during this fiscal year”.

  13. Great post, KK. We’ve had the HDHP for 3 years now, and even with 4 kids, it’s worked out quite well for us. We don’t go to the doc now unless it’s truly necessary, like for strep, and it’s forced us to take better care of ourselves for preventative reasons. We’ve learned SO much about docs, prescriptions, etc., which has also led to less medical bills for our family. We exercise more, eat better, and therefore are sick less. We’re also now super careful about things like making sure we avoid injuries during sports with proper safety gear, etc. We’ve taken to educating ourselves the best we can about health, safety and first aid stuff so that our out-of-pocket costs are minimal, so that we’ll only be spending big bucks if it’s something catastrophic or serious, God forbid. Ironically, I went one year and looked back at our ER visits with the kids, and only 1 of the 5 were a true ER situation. The others could’ve waiting till the next morning to see our family doc, which would’ve cut down on costs too. That being said, and Holly wrote about this not too long ago, if you feel like you need to go to the doc, you should go. There’s a bit of a fine line there.

      • KK on June 22, 2013 at 11:25 am
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      Great points Laurie. I think there are a lot of people who use the ER as an MD in place of a PCP and that definitely drives costs up. I guess I’m probably the opposite, I don’t go until I’m dying and then they tell me I should have gone days before. Not smart, but everyone has their own way of dealing with health. I do agree that plans like this force you to shop around and take better care of yourself, both good things in my opinion.

    • hannah on June 22, 2013 at 12:56 am
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    You have no idea how lucky you really are! $30/month and a $1250 deductible is amazing. I’m paying $200/month with a $2500 deductible. That is just for me. Then we are paying $200 for my husband, and he has a $2500 deductible too. It’s outrageous and only going to get worse next year thanks to obama’s oh-so-unbrilliant plan.

      • KK on June 22, 2013 at 11:30 am
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      I’m not saying I’m lucky or unlucky. There are a lot of people out there that have it a lot better and a lot worse. I have the money to pay the deductible so I guess that makes me lucky, or a good saver or both. It’s my lower earning staff that I’m more worried about (for now until the figure out how to save up the money they’ll need for the deductible). Sounds like your insurance is pretty terrible, sorry 🙁

  14. When you look at the total spending on insurance plus health care expenses, a high deductible plan is less expensive at all levels of spending, from zero to catastrophic. For self employed persons buying individual plans they are often the best choice. See this analysis at http://drpullen.com/catastrophichealthcareplan

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