Welcome to High Deductible Health Insurance Plans

If you have not heard of High Deductible Health Insurance Plans, you most likely will be learning about them soon via your employer.The Affordable Care Act, which was passed by Congress and signed into law by the President of the United States in March 2010, has many beneficial aspects for people currently with and without health insurance coverage. However, government actions in the healthcare sector rarely occur without consequences both intended and unintended in the private sector, one of which has been the increased use of High Deductible Health Insurance Plans to provide employee healthcare benefits, as employers grapple with rising healthcare premiums.

The Affordable Care Act has many intentions, the primary ones being: ensuring that tens of millions of additional Americans are covered by health insurance, ensuring that people are not denied coverage for pre-existing conditions, and reducing the cost of healthcare. While all of these are laudable healthcare goals, as are the many others that I do not have time to mention, the first two primary goals appear to be in direct conflict with the third goal. How can coverage be extended to tens of millions of additional Americans and denial of coverage for pre-existing conditions be outlawed while at the same time reducing the cost of healthcare? Somewhere something has to give to make these healthcare reforms work, as the increased mandates on insurance companies appears to be causing them to raise their medical insurance premiums. For many employers, the answer has been to offer or switch their employees to a High Deductible Health Insurance Plan to save on rising healthcare premiums.

A High Deductible Health Insurance Plan (HDHP) is a health insurance plan that has a high deductible that must be must prior offering traditional health insurance coverage. The high deductible can range anywhere from $1,200 to $10,000 or more, while the savings in healthcare premiums range from 20% to 50% or more. Such a plan essentially provides catastrophic medical insurance coverage that covers an individual or a family in the event that a major injury or illness occurs, for a lower cost of coverage.

The concept behind a High Deductible Health Insurance Plan is to have the healthcare consumer more engaged in the process of choosing when and how to seek medical assistance, since they have a greater financial stake in paying for healthcare. Ideally, this leads to more prudent decisions regarding when and how to seek medical assistance, leading to cost savings for the healthcare consumer, healthcare plan, and the employer and employee who pays the medical insurance premiums. For example, if one knows that an urgent care medical clinic will cost them a fraction of what it will cost them to visit a hospital emergency room, they are far more likely to choose the less expensive option, if they are paying for the visit due to being in a High Deductible Health Insurance Plan in which the deductible has not yet been met.

While the cost savings associated with a High Deductible Health Insurance Plan can be measured by the lower premiums paid and via studies that have demonstrated that when people have a financial stake in their healthcare, they tend to spend less, these plans do raise the obvious question regarding whether they discourage those covered in the plans from seeking medical attention for preventative care and necessary medical treatment.

A RAND Corporation study published in the March 2011 edition of the American Journal of Managed Care found that while High Deductible Health Insurance Plans did in fact reduce costs for the administrator of the plan, as those covered sought less medical care, it also found that reductions in the use of preventive care by those covered under High Deductible Health Insurance Plans, and that the plans could be causing people to reduce their medical spending on both necessary and unnecessary medical care.

"We discovered that costs go down dramatically during the first year people are enrolled in high-deductible health plans, as long as the deductible is at least $1,000 per person," said Amelia M. Haviland, a study co-author and a statistician at RAND, a nonprofit research organization. "But we also found concerning reductions in use of preventive care. This suggests people are cutting both necessary and unnecessary care." http://www.rand.org/news/press/2011/03/25.html

Some employers soften the blow for employees in High Deductible Health Insurance Plans by offering to pay for some of the employee’s out of pocket medical costs before they reach the high deductible. For example, an employer might pay for the first $1,500 of medical expenses for a plan that has $4,000 deductible. Employers also often offer their employees a Health Savings Account (HSA) that allows the employees to contribute money to an account for medical expenses on a tax free basis via paycheck deductions. Some plans also cover preventative care outside of the high deductible limit, which can potentially save medical care costs in the long run, as future medical problems are prevented or mitigated.

It appears likely that more and more people will be offered High Deductible Health Insurance Plans in the near future, as employers seek to reign in rising healthcare premium costs, which are often the second largest cost for an employer after salary. For those who traditionally have not sought a great deal of medical care, which often includes healthy, young, and single people, a High Deductible Health Insurance Plan can offer a chance to save a great deal of money on healthcare premiums. Older persons, people with preexisting medical conditions, and people with families to support will find their out of pocket healthcare costs will increase when enrolled in a High Deductible Health Insurance Plan, since much of their medical care costs are unavoidable. People in these situations would be wise to research if their employer offers a Health Savings Account to reduce their taxes, which helps to offset some of the additional money they spend for medical care.