High Deductible Health Care Plans

Friday, May, 18 2012

High Deductible Health Care Plans (HDHPs) are coming of age. These are health care plans which meet the current IRS limits of an annual deductible of $1,200 or more for single and $2,400 for family coverage. In addition, the annual out-of pocket expenses, excluding premiums, cannot exceed $6,050 for single and $12,100 for family coverage. Such plans are often pared with either a Health Savings Account (HSA) or a Health Reimbursement Account (HRA). High Deductible Health Care Plans are now offered by over 40% of employers with 1,000 employees or more, according to a 2011 Kaiser Family Foundation survey. The survey reported that between 2010 and 2011, the uptake by employers with 1,000 employees or more grew by approximately 9% from 32% to 41%. A 2010 survey by the RAND Corporation estimated than 54% of large employers offered one or more high deductible health plans.

HDHPs produce savings to both employers and employees by requiring employees to pay for a significant proportion of the initial out-of-pocket expenses in the form of co-pays, co-insurance, and deductibles. As noted above, deductibles for IRS qualified plans start at $1,200 and with a cap of $6,050 for single coverage. Compare this to a typical PPO plan that might have a deductible of $500 to $1,000 and it is clear how the employer saves.

Employees have potential savings in the form of reduced monthly premiums. According to the 2011 Kaiser Family survey, employee premiums for single coverage for an IRS qualified HDHP with an HRA/HSA were $589 per year and $3,076 for family coverage. The employee premiums for single coverage for a PPO was estimated at $1,002 and $4,072 respectfully. In addition, many firms make contributions to an employee’s HRA or HSA accounts. Kaiser reports that, on average, employers contribute over $600 for single and over $1,000 to family HRA or HSA accounts.

A typical single employee in a HDHP could save an average of $413 or 41% over a PPO plan; for a family that translates into $996 or 24% annually. On top of that, add in the average annual employer HRA or HSA contributions of $611 and $1,069 for single and family coverage.

So it begs the question. Why are only 17% of employees enrolled in a HDHP? One answer is “risk”. Employees generally lack a tool which helps them understand their financial exposure to the risk of large out-of-pocket health care expenses. Consider a single young healthy employee with an office visit or two a year, maybe a couple prescriptions for a cold, the flu, allergies, or contraceptives. Now consider a family with a couple of kids, the employee and spouse on a 2-3 maintenance drugs, a child’s unforeseen broken arm, surgery or a battery of diagnostic tests.

The good news is that large proportions of most plan members never have a claim or never meet their annual deductible limits. The bad news is that this very group could stand to benefit financially the most from a HDHP.