Are High-Deductible Plans Threatening Americans' Health and Finances?

Editors' pick: Originally published Oct. 4.

High-deductible health care plans have become part of that "new normal" health insurance experts always seem to be talking about these days.

The fact is, it's a new normal Americans are rebelling against, and they have a good case for doing so, experts point out.

Consider a brand new report out from New York City-based Guardian Life, which finds that "higher out-of-pocket medical expenses are threatening Americans' financial well-being and negatively influencing their health care behaviors."

The report, ominously called "A Crack In the Foundation," represents the first set of findings from the fourth annual Guardian Workplace Benefits Study.

In it, Guardian says its research "reveals that more American businesses are offering their employees high deductible health plans (HDHPs), but consumers require more support and education in the workplace to understand their options and to mitigate longer-term health risks."

Without the support of a health care savings account, which could cushion the financial blow from a medical emergency that required thousands of dollars in out of pocket expenses (that most Americans don't have, Guardian states), Americans workers could find themselves in real trouble.

Yet 60% of U.S companies don't provide employee's access to a health savings account (HSA), and that's a big problem since 60% of workers are unable to pay a $3,000 out-of-pocket medical expense. That would lead to a trigger effect, the report states, where many workers would have to apply for some kind of installment payment plan, put the bill on a credit card, or ask friends or family for a loan.

That's just the financial end of the high-deductible health insurance spectrum. According to Guardian, Americans in those health care plans are taking a heavy health risk, too.

"An unintended consequence of this financial stress is the risk working Americans are taking with their health, which includes ignoring medical advice or neglecting their own health care," Guardian states. A third of consumers in high-deductible health care plansi say that because of the high out-of-pocket costs, they did at least one of the following in the past year:

- Skipped a doctor visit
- Delayed a recommended procedure/surgery
- Failed to fill a prescription
- Avoided a blood test or X-rays

Clearly, there's a problem with high deductible plans, with no easy way out.

"Our study reveals a correlation between high out-of-pocket medical costs and delaying or ignoring medical care," says Dave Mahder, chief marketing officer of group and worksite markets at Guardian. "High deductible health care plans help employers rein in medical costs, but potentially at the risk of higher catastrophic medical and disability claims in the long term. "

"Employers offering HDHPs can help employees fund out-of-pocket expenses through health savings accounts and supplemental health benefits, but there's still room for improvement," Mahder adds.

Health care industry observers agree that high-deducible plans are a big problem - even if they do enable employers and insurers to cut costs.

"High-deductible health plans offer affordable premiums - and that's attractive from a budgeting perspective for companies," says Mark Fontenot, CEO at CirraGroup, a crowd-sourced medical debt settlement solution provider. "Unfortunately, the cost to use the plans can be anything but affordable for employees. Most Americans don't save for unanticipated health issues, yet those 'one time' events are often what drive people into medical debt. Studies shows that 62% of Americans have less than $1,000 in savings, though medical debt often far surpasses that amount."

But with myriad factors driving up health insurance costs, including ongoing problems getting healthy people to sign up for government-sponsored health care insurance under the Affordable Care Act, employers feel like high deductible plans are their only choice.

"Companies try to be fiscally responsible," Fontenot says. "Health care costs have increased dramatically for companies, with annual premiums for employer-sponsored family health coverage reaching more than $18,000 this year, which is up 3% over the year prior. In an effort to stem the uncontrolled expense, companies are opting for high-deductible plans."


The problem could grow worse, if more companies elect to pay the cash penalties for not offering employee's health insurance, thus sending them to government-run health care exchanges, where choices are limited and deductible are high.


"The fact is, the mandated coverage of Obamacare has made insurance unaffordable
for most," says Ilene Davis, a money manager with Financial Independence Services, in Cocoa, Fla. "Those who are offered HDHP's should be grateful they have any
coverage. It would likely be far less expensive for the company to pay the penalty and leave employees completely on their own."


Based on the overall trend, even employees that do not currently have a high deductible plan now will likely move to one soon, notes Adam Tibbs, CEO and co-founder of Parasail Health, Inc. a venture-backed startup that provides consumer loans to help people cover the costs of high out-of-pocket medical expenses.


"The latest National Centers for Health Statistics study shows that around 36% of people under 65 now have some form of high deductible health care insurance," Tibbs states. "The trend will continue as health care costs continue to climb at a faster rate than the rate of inflation and revenue growth for businesses. We predict that in another five years, the majority of health plans will be what is currently considered a high-deductible health plan."


For employees, in a world with stagnant wage growth, the cost of premiums and out-of-pocket expenses will continue to absorb an increasing amount of household income, Tibbs says. "With 46% of American adults unable to cover an unexpected expense of $400, according to the U.S. Treasury Department, this effectively makes insurance un-usable for many people who believe they are covered by a plan," he says.


It's hard to say sky-high deductibles were what health care reform advocates were shooting for with the ACA, but industry experts say that's the reality right now.


Consequently, if high-deducible health care plans represent that "new normal", then it's no surprise that many health care consumers want the old normal back, and as soon as possible.

More from Life Insurance

Is General Electric Stock Still Good for Your Retirement Account?

Is General Electric Stock Still Good for Your Retirement Account?

3 Worst Estate Planning Mistakes and How to Avoid Them

3 Worst Estate Planning Mistakes and How to Avoid Them

How to Protect Yourself and Your Family From Long-Term Care Insurance Scams

How to Protect Yourself and Your Family From Long-Term Care Insurance Scams

Why Property & Casualty Insurance Should Not Be Optional

Why Property & Casualty Insurance Should Not Be Optional

Seven Common Financial Regrets You Want to Avoid

Seven Common Financial Regrets You Want to Avoid