What are the risks of a high deductible plan?
At GiveForward, we recently expanded our benefits fairly significantly. It was a proud moment for me and Ethan to finally be able to offer our team both long- and short-term disability, a modest amount of life insurance, and a choice of healthcare plans.
Previously, we had a single plan option with a $350 deductible to prevent our employees from being in the same situation a lot of families on our site face. I thought that, given the nature of our work, most people would opt for more coverage. But much to my chagrin, the majority elected policies with $750-$2000 deductibles.
As CEO of a start-up with a lot of younger employees, I can’t say I was entirely shocked, but I couldn’t help being concerned that we had a group of employees who could not afford their deductibles.
To get a better handle on the personal financial risk our team was facing, I decided to send out a little survey to see if people knew what their deductibles were and to see if they would be able to cover them through a personal savings account, checking account or credit card.
The results were a little disappointing. Roughly 25% of the team has a deductible they can’t cover with personal finances. This got me thinking: If a quarter of my team can’t cover their deductibles, what about the general population?
How often do Americans choose high deductible insurance policies and what are the financial risks they face? As the costs of health insurance premiums continue to rise, many American families are choosing high deductible health plans to help save on monthly bills.
The rise of the high deductible
In 2013, a high deductible plan refers to a plan that requires a deductible of $1250 or more for an individual and $2500 for a family. Often, these plans come alongside Health Savings Accounts (HSAs), which allow you to save pre-tax for medical-related expenses, including co-pays, prescription medicine, eyeglasses, and more. The great thing about HSAs is that the money continues to accrue year after year.
The reality of the high deductible
Ideally, people who choose high deductible plans would be saving enough in these accounts to cover deductibles and out-of-pocket maximums, which vary depending on policies. But the reality is, many families take the monthly premium savings of high deductible insurance and apply those dollars to other essential expenses like mortgages, groceries, and daycares.
The unfortunate result is that many families are not in a position to be able to afford the co-pays and deductibles of a serious illness.
Recently the Kaiser Family Foundation estimated that one in five families will be on a high-deductible plan by the end of 2014. A 2011 study by the National Bureau of Research showed that 50% of Americans would find it difficult to come up with $2,000 in an emergency. And this segment of the population that would struggle to come up with $2,000 is likely the same group opting for higher deductible policies.
This means that in the next years, millions of Americans will not be able to afford the out-of-pocket costs of their insurance plans.
Given the fact that 72 million Americans take on medical related debt each year and 62% of bankruptcies are caused by medical related debt, this is not just a small problem for a few people. This is a massive problem that will get worse before it gets better.
What can we do to avoid risks with high deductible policies?
Encourage people to save
Whether it’s an employee, a friend, or a family member that has a high deductible policy, the best thing you can suggest is for them to create a rainy day fund to cover these costs.
The middle of an illness is the worst possible time to be stressing about money. An HSA or even a personal savings account with enough to cover deductibles is a great way to avoid that financial burden.
Stay in network
The best way to keep costs down is to stay within your provider network as much as possible. Often going out of network can cost a patient 20% or more in co-insurance.
If you do have to see a specialist out of network, make sure to find out in advance what the anticipated costs will be and see if the provider has payment plan options. The last thing you want a loved one to have to face is a collections company calling in the middle of treatment.
Shop around
If you haven’t read the Time article “Bitter Pill,” you should. TL;DR: Hospitals charge dramatically different amounts for the same procedure. If you have some flexibility in where you receive treatment, call around to find out where the most affordable services are offered.
Mediation services
If it’s too late, and someone you know is facing extensive out-of-pocket costs related to treatment, one of the best things you can do is contact a third party to help assess the bills and be an advocate for you. We work with the Karis Group and the Patient Advocate Foundation, both services that can help you save on your existing bills 90% of the time.
As for the GiveForward team members who can’t afford their co-pays, we’re discussing things we can do internally to help prevent financial stress. Some ideas we’re tossing around are:
- A group emergency fund for those who contribute;
- A company sponsored fund with a committee voting system for reimbursement;
- Limiting the selection for next year so deductibles can be no higher than $750;
What ideas do you have to help limit the risk of high deductible policies?
Conversations on Affordable Health Care 
It’s nice that you offer options for your employees… my company (a fairly large, publicly traded one) offers just one plan — with a $2000 deductible for individuals/$4000 for couples & families! And we still pay about $450/mo. for premiums.
That size deductible is a challenge, especially when one falls into the couple/family category. Even with an HSA, the costs can be overwhelming — in part because of HSA’s work by funding through payroll deductions where as medical bills can hit in big chunks. Early last year, my wife was ill and required a number of doctor visits to a variety of specialists, various tests, etc. Even with the $4000 deductible, we’d hit it by Feb. Meanwhile, only a few hundred dollars had hit the HSA by that point…
While we were able to negotiate payment plans on the $1000+ charges, the numerous $200-$300 office visits, prescriptions, etc. had to come out of our savings.It was still painful to see our home down payment dwindle to cover medical expenses (post-tax, too!) that could’ve come from HSA had they occurred later in the year. The HSA’s need to work more like a credit card than debit, where you can spend up to your annual contribution even if the money hasn’t yet hit the account. Or else, companies need to provide lump sum HSA bonuses, etc. to help fund those early year expenses.
Ben, thanks so much for your thoughts. The idea of HSA’s being a credit card is an interesting idea. I wonder if a company couldn’t temporarily play that role for their employees. Great comment!
I’ve worked for four companies now with both traditional healthcare plans (with high premiums and low deductibles) and High deductible plans combined with HSA accounts. Three of those four required that you setup an HSA when choosing the high deductible plans, and two of the four would contribute to the HSA on behalf of the employee. Some offered to match 50 cents on the dollar up to the yearly deductible, where as others paid into the HSA quarterly to meet full yearly deductible amount (saying it was still saving the company money over traditional healthcare plans).
As a younger worker that has not needed to visit a doctor in over 2 years, these plans offered much better value than traditional plans and will allow me to save what would have been wasted premium fees for future medical needs. They are not for everyone, but a lot of people will get much better value using the HSA+High Deductible plans.
Thanks, Greg! This is actually a really great idea. I’ll bring this up in our next leadership meeting.