Open Enrollment: Be Wary of High-Deductible Health Plans
Insurance so costly to use, many people forgo critical medical care
If you’re among those fortunate enough to have health insurance through your job, you’ve likely noticed that it’s eating up more and more of your income.
Over the past decade, the 55% increase in the average premium paid by an employee for family coverage is double the rise in average employee earnings, and nearly three times the general rate of inflation. The nonpartisan Kaiser Family Foundation also reports that the average deductible has more than doubled during that stretch, a period when the percentage of employees with health insurance who are charged a deductible rose from 70% to 83%.
Against this backdrop of rising health insurance costs for employees and employers, many plans have turned to offering high deductible health plans (HDHP) as an option. Among workers with employer-provided health insurance, 31% are enrolled in an HDHP in 2020, up from 24% in 2015, according to the Kaiser Family Foundation.
An HDHP may seem alluring. Premiums tend to be lower than traditional PPO plans. But shopping on premium alone is risky. As their name makes clear, in exchange for that lower premium you agree to a high deductible, and HDHPs also can have high annual out-of-pocket (OOP) maximums. Employers offer HDHPs to shift more costs to workers.
The standard sales pitch for HDHPs is that they encourage people to be more cost-conscious consumers. In reality, what often happens is that people forgo care, because coughing up the deductible is a budget-buster. For example, one study found that women whose employers moved them from a lower deductible plan to a higher deductible plan waited longer to get breast cancer screening and treatment than women enrolled in low deductible plans.
A lower premium becomes immeasurably expensive if it means you can’t afford to use the insurance it buys you.
About one in five employers that provide health insurance only offer an HDHP. But if you have a choice in plans, before you opt for a HDHP, there are some important factors to consider:
Is there anything covered without having to pay the deductible? The better plans offer some level of basic preventative care without you needing to pay out of pocket.
Is a health savings account (HSA) offered? Because of the high deductible, federal law allows employers to offer HDHPs with an HSA, essentially a vehicle to cover your premium and/or other costs with tax-free dollars. Money saved in an HSA is eligible for three terrific tax breaks, rolls over year-to-year, and is 100% owned by the employee. When you leave a job, your HSA is yours. In theory, an HSA is indeed an incredibly valuable retirement account.
Alas, a recent survey found that for the more than one-third of HDHPs offered by employers, employers did not also offer a companion HSA. Without the carrot of a tax-advantaged HSA, are you sure an HDHP makes sense? Is your emergency fund fat enough to cover the deductible?
Will your employer help cover some/all of your deductible? According to the Employee Benefit Research Institute, in 2018, less than half of the HSA accounts in its database received a contribution from the employer.
If you’re not going to get any help saving up for the deductible and other out-of-pocket expenses, or you can’t fathom setting aside some of your paycheck into an HSA, the same question applies: How will you cover the deductible and coinsurance?
Can you cover the worst-case scenario? Be sure to confirm the maximum out-of-pocket costs you will be required to pay. In 2021, the IRS has limited the max OOP to $7,000 for individuals and $14,000 for family coverage. Premiums are not part of the calculation. That’s the max; check what your employer’s limit is. And keep in mind, that’s only if you stay in-network. If you have family coverage, you’ll also want to determine if there is a per-person deductible or just one aggregate family deductible.
Whatever your OOP max is for the year, if you don’t have it available in an HSA or a savings account, you’re playing with financial fire. In the event you need extensive care, what’s likely to happen is that you use a credit card to pay the bill. And then you’ve got a big credit card balance charging you 16% or more in interest.
That said, if the HDHP is the best choice for your circumstances, doubling down on growing your savings should become an even more pressing goal.