I just received a notification that a new high deductible health care plan is being added to my employer’s list of policies this fall. They’ve held out on this option for a long time, but many employers have already made the switch. These days, high deductible health care plans are all the rage. Many employers don’t even offer traditional plans anymore.
As the benefits administrator for a nonprofit, I have a lot of experience with these plans. Simply put, high deductible health care plans are very different than the traditional plans that many of us seasoned workers are used to. If the idea of a high deductible health plan sounds very foreign to you or you are considering a switch, these are some of the positives and negatives to these plans.
What are High Deductible Health Plans
The big idea with these plans is for the insurer to trade the consumer lower cost premiums for more out of pocket costs. Thus, you might see a significant cut in your regular premium payments, but have to start picking up the tab for your doctor visits. However, the costs are limited to a deductible threshold so as to guarantee that catastrophic expenses don’t send you into bankruptcy.
For example, a high deductible plan might have you pay $2,500 out of pocket, but after you’ve paid that deductible, all additional health expenses would be covered.
Benefit: Premiums are Low
For now, most of the HDHP premiums are quite low. As more and more people enroll in the HDHPs (High Deductible Health Plans), insurance companies have worked hard to bring premiums up to the level of traditional plans – they can’t let consumers hold onto their savings for too long. In fact, over the last three years, I haven’t seen premium increases under 16 percent.
Regardless, You can expect to pay about 20 to 30 percent less, which is huge savings when you are spending $20,000 a year in premium payments, HDHPs will be saving you several thousands of dollars each year.
Negative: More Payments Out of Pocket
Of course, this all means that you might be paying all or at least some of a hospital bill. It will likely mean paying your primary care physician with your credit card. Often annual out-of-pocket expense limits will run between $5,000 and $10,000. If you have recurring health care costs, you will want to scrutinize switching to a HDHP very carefully. It’s easy to get caught up in a situation where you daily medication makes these types of plans unattractive.
Positive: HSA Accounts and Employer Contributions
One of the best features of an HDHP is the Health Savings Account (HSA). This is a unique savings account that can only be opened if you have an HDHP. It works similarly to an FSA, except money can be rolled over year after year.
It’s probably better to think of the account like a 401k, in that you can put money into the account pre-tax. So long as you use the money for medical expenses, you do not need to pay taxes on HSA funds.
Most employers will also put money into HAS accounts for you. This effectively lowers your deductible and allows you to build up savings in your HSA.
Negative: Costs that Don’t Apply to the Deductible
One of the most frustrating parts to the HDHP is that not all health expenses count towards your deductible. Everyday medical expenses like buying Tums at the grocery store are a good example. It depends on the plan, but often, other common health expenses, like prescription drugs, may also not count against the annual deductible.
While most expenses will chip away at your annual limits, it can be frustrating if you are constantly spending on medicine in a category where you have no hope of reaching your out-of-pocket maximums.
Positive: HDHPs When You are Young
If you are young, an HDHP is going to work great for you. Odds are, you don’t have recurring health care expenses allowing you to pocket the savings from lower premiums. If your employer contributes money to your HSA, you’ll likely be able to build up funds to cover future expenses down the road. There is little chance that you won’t save a great deal of money.
Maybe: HDHPs When You are Middle Aged
HDHPs can work for anyone. However, my experience is that it is much harder to start out on one of these plans when you are older and have recurring health care costs. This is commonly the case if your employer is not contributing to your HSA.
If you don’t have several years where you are able to build up your HSA savings, it’s easy to find yourself endlessly paying money out of pocket for recurring expenses. Even so, if your employer contributes enough to your HSA, it might still be a good choice. It will ultimately come down to how much is being contributed, what is your deductible and out-of-pocket maximum and if there are any medical expenses you are paying for that do not count against your annual deductible.
Bottom line: HDHPs are likely to save you money in the long run. This often means paying for more doctor visits out of pocket, however, the costs are usually manageable and the premium savings are worth it. I’m planning on making the switch to my employer’s HDHP this next election.