High Deductible Health Plans (HDHPs) have grown in popularity in recent years. According to Mercer, 30% of all covered employees were enrolled in account-based high-deductible consumer-directed health plans in 2017.
With the increasing cost of health plans, this switch to HDHPs is part of a larger trend of employers shifting costs to their workers.
We look at what these plans are, how the deductible limits are determined, the impact of these plans and whether your business should offer one.
What is a High Deductible Health Plan?
An HDHP is a health insurance plan with lower monthly premiums and higher deductibles than more traditional plans. Some HDHPs also offer additional wellness benefits that are provided before a deductible is paid. HDHPs are a form of catastrophic coverage, intended to cover catastrophic illnesses such as stroke, heart attack, etc.
HDHPs are usually paired with a health savings account (HSA) that allows you and/or your employer to make tax deductible contributions to. You can later use the HSA to pay for your medical expenses, tax free.
How Deductibles and Out-of Pocket Maximums Work
A deductible is the annual amount that the patient must pay before their health insurance kicks in and starts paying. So, if their deductible is $1,000, they will pay the first $1,000 in medical bills for the year. Once they hit the $1,000 annual deductible, then their insurance will start helping for the remainder of the year. The HDHP will pay 70%, 80%, 90%, or 100% of the health care costs at that point. It depends on their individual plan. Typically, the deductible amount resets at the beginning of each calendar year.
The Out-of Pocket Maximum is the maximum amount patients are required to pay in any given year, before the HDHP covers any additional medical costs 100%. This protects them from serious financial hardship and possible bankruptcy if they have a high cost event or series of events, such as a stroke, heart surgery, or maternity.
IRS Rules For High Deductible Health Plans
Every year the IRS updates the deductible and out-of-pocket maximum requirements for a plan to qualify as a high-deductible health plan (HDHP). The IRS announced the rules for 2018.
The minimum HDHP deductible amount for 2018 as dictated by the IRS are:
- $1,350 per individual
- $2,700 per family
The HDHP maximum out-of-pocket limits for deductibles/co-pays (does not include premiums) set by the IRS for 2018 are:
- Single Plan: $6,650
- Family Plan: $13,300
Participants in a qualified HDHP that meets these requirements are allowed to make contributions into a Health Savings Account (HSA). These accounts work similar to a 401(k), where employees accumulate and invest HSA funds pre-tax and can then use the money to pay for qualified medical costs.
The IRS HSA maximum contribution limits for 2018 are:
- Individual Plan: $3,450
- Family Plan: $6,900
Impact of Companies Going to High Deductible Health Plans
According to a survey by the National Business Group on Health, 39 percent of large employers offer only high-deductible plans today.
In a recent Bloomberg article, John Tozzi and Zachary Tracer wrote,“Since the early 2000s, employers have mostly embraced high-deductible health plans. The thinking has been that requiring workers to shoulder more of the cost of care will also encourage them to cut back on unnecessary spending. But it didn't work out that way. In the wake of the 2008 financial crisis, many families were hard-pressed to meet their soaring health-insurance deductibles.”
Here are some statistics on the impact of HDHPs:
- The NY Times reported that Kaiser, a health policy research group that conducts a yearly survey of employer health benefits, calculates that deductibles have risen more than six times faster than workers’ earnings since 2010.
- Patients with high-deductible policies are grappling with significantly greater out-of-pocket costs. According to the Kaiser Family Foundation reports the average annual out-of-pocket costs per patient rose almost 230 percent between 2006 and 2015.
- According to Kaiser Family Foundation, 43 percent of insured patients said they delayed or skipped physician-recommended tests or treatment because of high associated costs.
- According to Benefitfocus, given the choice of a high-deductible option, about 41 percent of employees chose HDHPs.
- Health Affairs reports that, in the individual ACA marketplaces, almost 90 percent of enrollees are in a plan with a deductible beyond the qualifying threshold for an HDHP.
- By offering high-deductible plans, employers are better able to control healthcare spending by shifting financial responsibilities onto employees. A study from the National Bureau of Economic Research indicated employers that offered high deductible plans reduced company healthcare costs over three years.
- The Impending policy currently scheduled to take effect in 2020 could drive more employers to offer high deductible plans. The ACA's Cadillac Tax is an excise tax of 40 percent on employer-sponsored plans valued at more than $10,2000 for individuals and $27,500 for families.
- An Instamed survey showed that hospitals and health systems used to collect a majority of healthcare reimbursements from government or commercial payers. With the rise in popularity of high-deductible plans, hospitals are interfacing more than ever with patients to collect on accounts. From 2011 to 2014, the number of consumer payments to healthcare providers increased 193 percent.
- The American Hospital Association reported that hospitals take on bad debt when patients fail to satisfy their financial obligations. Since 2000, U.S. hospitals have provided more than $502 billion in uncompensated care expenses.
- Many hospitals have attributed a jump in bad debt expenses to patients' increasingly unaffordable insurance deductibles. For insured patients, management consulting firm McKinsey & Company estimated the rate of bad debt is increasing at well over 30 percent each year in some hospitals.
Should your Business Offer A High Deductible Health Plans
While offering an HDHP to employees will likely result in savings for the business, it is in a way pushing the costs onto the employee, especially if they're faced with a serious medical situation.
Many proponents of HDHPs argue that they're for the most part beneficial to both businesses and employees, but it does place more responsibility on the employee to make smarter healthcare decisions.
It is important for businesses that offer HDHPs to also offer education to employees on how to better take a proactive role in choosing their healthcare providers and how to best save.
As with all other health insurance decisions, it is recommended that you speak to your insurance agent about the pros and cons of offering a high deductible health plan.