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Jul 2017

Understanding the Pros and Cons of the High Deductible Health Plan

The Affordable Care Act (ACA) did give rise to one concerning statistic: more people have moved to high deductible health plans (HDHP) in the past five years. A Centers for Disease Control and Prevention’s National Center for Health Statistics report found that the number of Americans between the ages of 18 to 64 with a high-deductible plan grew from 26.3 percent in 2011 to 39.3 percent in 2016.

Providers have cause for concern, as more patient out-of-pocket liability can be troublesome to the revenue cycle. Among privately insured U.S. adults with HDHPs in 2016, 15.5 percent reported difficulty paying medical bills in the past year. That 15.5 percent figure compares to 10.3 percent of adults with a traditional health plan (low deductible).

In terms of preventive care, another worry is that the report found privately insured adults with employment-based HDHPs were more likely than adults enrolled in traditional plans to forgo or delay medical care. Of course, this does not come as a complete surprise, as large out-of-pocket costs have always been a deterrent to health care. In 2016, 9.2 percent of privately insured adults with HDHPs didn’t receive or they delayed medical care due to high costs, compared to 5.2 percent for those with traditional, low deductible plans. The analysis from the Employee Benefit Research Institute, a nonprofit organization, found that low-income people even skipped free preventive services, like flu shots, and cut back on doctors’ visits.

In 2016, HDHP was defined as a health plan with an annual deductible of at least $1,300 for self-only coverage or $2,600 for family coverage. Traditional plans have annual deductibles below these minimum levels. Relative to traditional plans, HDHPs tend to have lower premium costs, which at first glance makes them  attractive to consumers and employers. With a high deductible, a person enrolled in a HDHP may likely have a higher out-of-pocket cost in the initial stages of his or her care.

So the question becomes: is a high deductible plan worth having if it may inhibit a person seeking health care? A New York Times 2016 article noted, “[t]here is no doubt that these plans can be a source of real financial hardship and poor medical decisions. They can lead to several thousands of dollars of out-of-pocket costs, and the higher burden on working families has been a theme sounded by both Democrats and Republicans in this election season.”

The Times article found that even people with multiple medical bills have decided that the potential monthly savings are worth the large out-of-pocket risk. On average, families saved almost $150 a month in premiums, or $1,800 a year, if they elected the high-deductible option.

Companies are often happy to let employees take the risk. They are viewed as a way of warding off the so-called “Cadillac Tax,” a controversial new charge under the ACA that would make employers pay an excise tax on the most expensive health plans. The tax, which has been delayed until 2020, is calculated on the cost of a plan’s annual premiums and is aimed at discouraging overly generous coverage that may lead to people getting too many tests and procedures.

As rising health plan premiums continue to outpace wages, the smaller bite out of the employee paycheck that the high-deductible plan offers is often the only option available to lower-income wage earners.

“The absolute dollar amounts coming out of their paychecks is very noticeable right now,” Edward Kaplan, a senior vice president for the benefits consulting Segal Group, told the New York Times.

This is the Vegas-aspect of high deductible health plans: as long as a person stays healthy, the high deductibles won’t hurt budget. This gamble makes the HDHPs very popular among younger people. Working twenty-somethings are less likely to incur high medical bills, so they prefer the lower monthly premiums. Benefitfocus, a benefits technology firm, estimates that when given a choice about 44 percent of millennials working for large employers are enrolling in HDHPs, compared with 36 percent of baby boomers.

Even more disturbing is that nearly seven years post-ACA, there is strong evidence that people have trouble understanding the subtleties of any health plan. People are likening the process of open enrollment and picking a plan to the pleasures of a root canal, Shan Fowler, an executive at Benefitfocus, told The Times. “The understanding of a PPO versus high deductible is not good at all.”

In other words, there is not enough number crunching  being done by the potential plan subscriber. Health plan policy experts are concerned that these plans benefit some people more than others. For example, a person with chronic health conditions who may be older or not have the financial resources to pay for their care could end up paying far more for a plan with a lower deductible and higher premiums, when a high deductible plan makes better long-term sense. While expecting the general public to spend the time analyzing the plans from both a long-term and short-term cost standpoint is probably unreasonable, it is nonetheless required.

Therefore, selecting the right health plan for an individual or family should be viewed as financial planning as much as health care. Selecting the less expensive monthly plan serves little purpose if a large deductible becomes a wall to a person seeking medical attention. Conversely, a healthy person selecting an expensive PPO policy to gain more care flexibility may just be a waste of money when a HDHP may have been the more prudent investment.

Ultimately, however, long-term financial planning is a luxury for many people. The older, chronically ill patient referenced above may choose the low-deductible plan because they can better afford monthly premiums than a lump sum deductible payment. If only the potential patients would be given more information about the long-term dollars and sense of what plan is best for them, their personal savings could be substantial and they may have no barriers to seeking the proper health care.

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