NEW YORK (MainStreet) — High deductible health insurance plans are becoming commonplace as more employers are shifting health insurance costs to their workers.
Consumers are gravitating toward plans that have lower monthly deductibles in an effort to lower the costs of their monthly premiums. High deductible plans have many advantages, especially for Millennials and Gen X-ers who rarely go to the doctor because they are healthy and do not rely on many prescription drugs. The catch is that the out-of-pocket costs might prove to be a surprise for consumers who don’t budget for meeting the higher deductible.
“If they’re young and healthy, a high deductible plan may be a good fit," said Nate Purpura, vice president of consumer affairs at eHealth.com, an online health insurance exchange based in Mountain View, Calif. “Shoppers who come to these plans in pursuit of lower premiums don’t always understand what they’re getting themselves into.”
Benefits of Buying a High Deductible Plan
Saving money each month is critical for many consumers who are healthy and would rather allocate the extra money toward paying down their student or auto loans or stashing the money away for a rainy day if an emergency arises.
The monthly savings can also be allocated toward a Health Savings Account (HSA), which provides the same tax advantages as an IRA. Only people who have a high deductible plan can open an HSA account at a bank or credit union. The plan must have an annual deductible of $1,300 for individual coverage or $2,600 for a family, according to the IRS. The maximum amount of the contribution is $3,350 for individuals and $6,650 for families.
The HSAs can cover certain medical expenses and many common ones include prescription medications, doctor and dentist visits and eyeglasses. Contributions to an HSA are not subject to federal income taxes and can be invested like an IRA. The advantage of HSAs is that any unused funds roll over each year and any remaining money can be used for retirement after the age of 65.
Consumers who opted to purchase coverage on the public health insurance exchanges are especially good candidates since most of the purchased plans, including silver and bronze plans under Obamacare are high deductible plans.
“You fund it ahead of time, which means you will get a discount for any medical procedures you need in the future, said Laura Adams, insuranceQuotes.com’s senior analyst said. “It can add up to some substantial savings.”
Consumers can buy their HSA though their employer, but also through the open marketplace. There are a myriad of HSAs out there, but look for the ones that charge no or minimal fees for monthly account maintenance and transactions. Some accounts are more basic and are more akin to a regular savings accounts, but other ones give you the option to choose from various stocks and mutual funds.
“You can choose anything that is on the market,” she said. “They are totally portable, are owned by you and have no affiliation with your employer.”
What's more, high deductible plans remain a favorite, because they give consumers more control over how much they are spending on healthcare, said Sally Pipes, CEO of the Pacific Research Institute in San Francisco. Since there are now 14.5 million HSAs, research has found that consumers who have chosen high deductible plans and paired them with these accounts has resulted in reductions in health care spending of 15% each year, she said.
“If an emergency strikes, the high deductible policy can protect a patient from astronomical medical bills,” Pipes said.
Millennials and Gen X-ers might be able to benefit the most from the combination of the plan with an HSA, especially if their account goes largely used, leaving them with a “sizeable nest egg in their HSA, which they can spend however they like on health care or anything else once they turn 65, she said.
Disadvantages of a High Deductible
Consumers who often have doctor’s appointments or need treatment for a chronic medical condition and need to use prescription drugs on a regular basis should avoid these plans, said Purpura.
Determine if you can pay for the entire annual deductible from your savings in case of an unexpected hospitalization or illness occurs.
“People who are savvy about high-deductible health insurance plans and HSAs can amass thousands of dollars over just a couple years and use that money to cover co-payments or their deductible in the event of a serious medical issue,” Purpura said. “They can use also it to pay for things like glasses or dental care and other things that many standard health insurance plans don’t cover.”
Some workers turned to high deductible plans to defray some of the costs with 46% of employees who selected a major health insurance plan with a high deductible of $1,000 or more last year, up from 34% who said the same in 2014, according to a recent Aflac survey.
A majority of employees have regretted this choice in hindsight with 52% who found the high deductible plans to be a poor choice while 59% said the plans were financially detrimental. Millennials expressed the greatest amount of regret with 65% who said they disliked the plan.
Individuals who choose plans with higher deductibles should also consider opening an HSA or buying additional voluntary insurance for critical illness, which can cover the cost of deductibles or lower the impact to their budget, said Matthew Owenby, chief human resources officer at Aflac.
In some cases, it is not that consumers prefer high deductible plans, but rather are forced to choose them, because companies are shifting the financial burden onto employees, said Dave Ratcliffe, principal of health and productivity practice at Buck Consultants at Xerox in New York. Now consumers also “have more skin in the game,” he said.
One critical issue when employees select these plans is that they tend to put off doctor’s appointments even though preventative care such as annual checkups are covered 100%.
“Employees look at high deductible plans and think they will have high expenses,” Ratcliffe said. “The challenge is to make sure the plan is set up so employees understand preventive care is covered and incentivize employees to seek preventive care.”
Since 75% to 80% of Americans are not meeting their deductibles, consumers are looking for better deals, said Vish Banthia, founder and chief medical officer of ZendyHealth, the Los Angeles health care cost comparison company. Some doctors will negotiate on procedures such as getting allergy testing or an MRI, so consumers can save 10% to 80% of the cost.
“Up until now, health care has been one of the only industries in which nobody knows the price tag for the medical procedures until you get a super high medical bill after the fact,” he said. “Our website shows you the national average.”