Healthcare

The high deductible health plan (HDHP), the up side, the down side and what you should know

Let’s take a close look at this high deductible health plan idea and what it may mean to you.  First, if you have no health insurance and this type of plan is affordable in terms of premiums, it will provide a good measure of protection from catastrophic expenses.  Second, if your employer only offers a high deductible health plan, it is certainly better than no coverage at all.

Umm, what was your deductible again?

Now, if you are currently in a typical PPO or Point of Service (POS) plan with a standard deductible, including a prescription drug plan with co-pays or modest coinsurance and your employer says, “we have a deal for you” we are converting to a high deductible health plan (HDHP) and adding a Health Savings Account (HSA), but your premiums will be lower, you might want to check your wallet.   As an example, following is the design of a typical HDHP from a major insurer (some HDHPs have  lower deductibles).  At first glance it does not appear all that different from a traditional plan except for high deductibles.  However, take a closer look.

  1. With a traditional plan there is an individual deductible and a family deductible.  The family deductible can be met by two or more individuals.  Let’s say there is a family of four with a $500 individual and $1,000 family deductible, if two individuals reach their $500 deductible, the $1,000 deductible is considered satisfied for the rest of the family members.  Not so with a high deductible health plan.  If there are two or more members of a family, no benefits are payable by the HDHP until the family deductible ($5,000 in this example plan) is met. Even if one individual reaches the $2,500 deductible, there is no benefit payable because the family still has another $2,500 to satisfy toward the family deductible.
  2. Under the high deductible health plan virtually all services are subject the deductible and coinsurance. This means that there is no separate prescription drug coverage, rather prescriptions are subject the deductible and coinsurance.  
  3. To put it simply, except for some preventive services covered at 100% and not subject to the deductible, a family will spend at least it’s deductible before any reimbursement from its health plan.  In this example plan, the family is also at risk for 20% of the first $25,000 in expenses after the deductible is met. In other words the potential family expense for eligible charges is $10,000 per year.
  4. Just like a traditional plan, a HDHP may have a network of doctors.  If you go outside that network, you may have no coverage or be required to pay a higher coinsurance.

The idea behind all this is if you are at risk for a large deductible out-of-pocket, you will be a more prudent consumer of health care, thus saving money.  The key question is can you afford do to that?  Keep in mind that the premium you pay for this coverage and likely the payroll deduction your employer takes will be considerably less than with a traditional plan.  However, you still must pay your deductible.  To help you pay for all this, you can establish a Health Savings Account (HSA) if you are enrolled in a qualified high deductible health plan.  Such a plan must have at least a $1,200 single and $2,400 family deductible and cannot have an out-of-pocket limit higher than $5,950 for single coverage or $11,900 for family coverage (including the deductible).  To the extent your premiums are lower in the HDHP, you might want to consider placing the premiums saved into a HSA.

High deductible health plans have one big drawback, they are not income sensitive.  If your family earns $50,000 a year, a HDHP may be a serious burden regardless of the lower premium. If your family earns $250,000, a HDHP may, coupled with a HSA, be a boon to saving for health care costs in retirement.  Will the upfront costs under a HDHP discourage you from obtain necessary health care for you and your family?

A Health Savings Account allows you to save  tax-free money (and potentially earn tax-free interest on the account) to help offset your out-of-pocket expenses. Because the unused money can roll over from year to year (unlike a flexible spending account) you may be able to save money for health care costs in retirement.  For 2011, a single person may save up to $3,050 in the HSA and a family $6,150.  If you are 55 or older you can add an additional $1,000.  The annual limits include any employer contributions.  However, a HSA is not for individuals 65 and older or anyone eligible for Medicare.  Before you rush out to set up an HSA, better check all the rules carefully.  Here is a link to the IRS publication on HSAs.

A negative view of HDHP and HSAs

If you want the dark side of these plans, at least as perceived by one writer, read this. Although I must point out that while he blames insurers, the fact is a substantial portion of the movement to these plans is among large employers that are self-insured.

Sample High Deductible Health Plan

Basic plan summary
Plan type PPO (Preferred Provider Organization) – Allows you to choose to receive care from network providers of your choice.
Deductible individual $2,500
Deductible family $5,000
Coinsurance 20% after deductible
Individual out-of-pocket maximum after deductible $2,500
Family out-of-pocket maximum after deductible $5,000
Individual lifetime maximum Unlimited
Dependent coverage Eligible children covered to age 26
HSA eligibility Yes
Doctor office visits (illness and injury)
Office visit – history and exam Subject to deductible
Office visit – specialist Subject to deductible
How can I find a doctor in this plan’s Network? Search for a doctor or hospital here
Do I need permission from my primary care doctor to see a specialist? No
Do I need authorization before seeing an out-of-network doctor? No
Hospital services Your cost sharing
Emergency room Subject to deductible
Outpatient Lab/X-ray Subject to deductible
Outpatient surgery Subject to deductible
Hospitalization Subject to deductible
Preventive care
As part of the Affordable Care Act, preventive services are paid at 100% of the allowable charge for new enrollees after Sept. 23, 2010. This includes routine screenings, immunizations, checkups and counseling received to prevent illness or disease.
Periodic health exam No charge
Periodic OB-GYN exam No charge
Well baby care No charge
Prescription drug
Generic Subject to deductible
Brand Subject to deductible
Non-formulary Subject to deductible
Prescription drug – Mail order
Generic Not covered
Brand Not covered
Non-formulary Not covered
Maternity coverage
Pre and postnatal office visit Subject to deductible (spouses must be enrolled in same plan)
Labor and delivery hospital stay Subject to deductible (spouses must be enrolled in same plan)
Additional coverage
Mental health Subject to deductible
Substance abuse Subject to deductible

Categories: Healthcare

18 replies »

  1. I saved my doctor visits/surgeries until this year planning to meet our deductible (have several medical issues) and got started…now my husband is planning on changing jobs…..does that mean we have to pay the $2500 deductible again? I wish I had the coverage of former days when I wasn’t sick…..

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    • The chances are you will have to pay a new deductible under a new employer plan. (but it may not be $2500). If you are in the middle of a procedure or hospital stay at the time you lose you current coverage, your current coverage should pay those charges. That’s not an illness but an actual service in progress at the time. Having said that if the new coverage is with the same insurer or is self-insured your husband might try and get some accommodation toward the first year deductible with the new plan. He should talk to the prospective employer before he starts the new job. I don’t know what level job is involved, but it’s possible to ask for a hiring bonus at least to offset any duplicate deductible.

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  2. To point 1) My understanding was that in the case of a HDHP with a hypothetical 5K family deductible and a 2.5K Individual deductible and 0% Coinsurance, If an individual hits 2.5K then benefits pay for that individual ONLY, until the Family deductible is reached. Take a family of 4. Bob, Janet, Suzy, and Billy. Billy is in an accident and winds up in the hospital for a week. He meets the 2.5K deductible in 2 days and the insurance company will now pay for the rest of his stay there, and all of his after care. The rest of the family is super healthy from eating veggie-mite and mayonnaise sandwiches. =)

    In an alternative scenario, Bob, had to have a mole biopsied, $800. Janet had an IUD replacement $1200. Billy broke his arm $800. Suzy had some problems with cutting and ended up in the emergency room $900, and then in counseling the rest of the year $1200.

    So the family paid:
    $4900 + the plan premiums, The insurance company did NOT pay because no individual hit their deductible, nor was the family deductible reached. This is basically the worst case scenario for the HDHP consumer barring the catastrophic. This is how you end up in the red vs a traditional plan, death by 1000 cuts.

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    • Your scenario describes how a traditional plan works, not a HDHP. The entire family must reach the deductible before a penny is paid. There is no individual deductible. Further, 100% reimbursement does not kick in until the out of pocket limit is reached so until that point there is typically still coinsurance to deal with.

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      • The individual deductible applies only if there is one person enrolled; single coverage.

        Here is the full explanation from the post.

        With a traditional plan there is an individual deductible and a family deductible. The family deductible can be met by two or more individuals. Let’s say there is a family of four with a $500 individual and $1,000 family deductible, if two individuals reach their $500 deductible, the $1,000 deductible is considered satisfied for the rest of the family members. Not so with a high deductible health plan. If there are two or more members of a family, no benefits are payable by the HDHP until the family deductible ($5,000 in this example plan) is met. Even if one individual reaches the $2,500 deductible, there is no benefit payable because the family still has another $2,500 to satisfy toward the family deductible.

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  3. High deductible plans are very different than copay-based plans, there is no doubt about that. When you compare the premiums of the two (the real cost, not just what it costs you as an employee of a company), the high deductible model is the best-fit for many individuals and families. While copay-based plans limit out-of-pocket exposure on a day-to-day basis, they cost roughly twice as much as their HDHP counterparts.

    Above all else, both models prevent bankruptcy which of course is the main purpose for any insurance product. Check out http://www.HDHPexpert.com for more information about HDHPs.

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    • HDHP (1) are better than no plan at all, (2) shift costs to participants and create a financial burden on lower income people, (3) after the initial affect of this cost shift, increase at nearly the same rate as PPOs. They are in effect a type of catastrophic plan that may be fine for people who can carry the risk, but for the general population they serve to prevent necessary access to care.

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      • rdquinn – HDHPs are definitely better than no plan at all, and we can agree on that. I am curious to know your thoughts on the following scenario:

        HDHP plan costs $200/month/single: $2400 a year. $2000 is spent towards a $2500 deductible. Total annual cost: $4400. Out of pocket maximum of $5000 acts as ultimate safety net.

        Copay plan costs $400/month/single: $4800 a year. Before any claims, total annual cost exceeds the HDHP example above. No out of pocket maximum; copay structure continues indefinitely.

        In this scenario, how is the HDHP not favorable to the copay-based plan?

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      • If a person is paying the full cost and is prudent by putting the difference between the premiums away to hold for the deductible you may have a point. Simply having a high deductible is nothing new, but inn this case as you know, the deductible for a family is applied differently which can be a burden.

        In the employer based situation where the employee may be paying 20-25% of the premium it’s an entire different matter and my comments hold.

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