By now, most people have at least heard of high deductible health plans (HDHPs), especially if they have one. A major gap though, exists between understanding what these plans are, what they mean, and who should have them. When it comes to personal health, it’s important to be aware of the opportunities and limitations of these health plans to ensure realistic expectations.
In this post, we will share some context and explore the history of high deductible health plans, why they came to be, and what patients should be aware of when using them.
High-deductible health plans (HDHP) are health insurance plans with lower premiums and higher deductibles than might normally be associated with a traditional health plan. Some HDHPs offer additional "wellness" benefits, like annual exams for example, that are covered (in full or in part) before the patient’s deductible is reached. High-deductible health plans are a form of catastrophic coverage, intended for people who are generally healthy and do not anticipate major medical costs. As of 2015, the minimum deductible for a single person with an HDHP is $1,300 and $2,600 for a family. Similarly, the maximum out-of-pocket is $6,450 (up from $5,800 in 2009) for a single person and $12,900 for a family. That means that in case of an emergency, a single person with a HDHP would be responsible for $6,450 maximum out of pocket (not including their monthly premiums). Being covered by an HDHP is a requirement for having a health savings account.
A health savings account (HSA) is a patient-owned medical savings account available only to those enrolled in high-deductible health plans. Money added to these accounts is not subject to federal income tax at the time of deposit but can incur taxes if non-medical withdrawals are made. If a patient does not spend the account balance by the end of the year, the funds roll over to the next year. As of 2011 over the counter medications can not be paid for with HSA dollars without a prescription. HSAs are different from company-owned Health Reimbursement Accounts (HRA).
Health Reimbursement Accounts (HRAs) are employer-created accounts that work in tandem with HDHPs. In these, employers set the parameters and fund them; they do not roll over year over year nor do they follow employees to new employment. If funds remain at year’s end, balances remain with the employer. These accounts are set up to pay employees back for medical costs paid out-of-pocket as a result of HDHPs.
Consumer Driven Health Plans (CDHP) refer to plans that allow members with HDHPs to use HSAs, HRAs, or other products to pay for their health related expenses directly.
Why HDHPs Came To Be
Now that we’ve gone through the main must-know terms in HDHP land, let’s delve a bit deeper. Throughout recent decades, and with the advancement of technology, billions of dollars have been poured into healthcare. Is the price pickle we’re in now worth it? Did healthcare indeed get better? In some respects, it did.
From pharma and testing, to equipment improvements, technological advancements and research; healthcare, generally, did improve. But not without a cost. Without price transparency, with a lack of real-time data, and an inability to stop and tackle the problem, the depth and severity of the healthcare hole went largely unaddressed. The system structure is such that lots of money is spent without real-time implications. However, what goes up must come down, and insurance companies are left with no choice but to compensate with annual, double digit premium increases.
One proposed solution to this ever-growing problem was the creation of HDHPs in the early 2000s. The idea was to give people a greater stake in their personal health, encouraging them to be proactively preventative and also careful in their health-related spending. A great idea no doubt, especially with the recent focus on healthcare consumerism and the democratization of healthcare - but this was more than a decade ago, and prices weren’t then nor are they now universally available. HDHPs have become much more popular in recent years, at rates much faster than projected. They have also developed a reputation for sub par coverage - but it’s not the coverage that is the problem. Rather, it’s our outdated, ‘insurance-company- should-pay-for-everything’ perception of insurance.
HDHPs are not intended to accommodate the weekly doctor goer nor the chronic care patient; their purpose is to inspire ownership of personal health by putting more responsibility in the hands of the individual. They offer a lower cost of membership and are intended to encourage patients to ask, engage and play an active role in their health, rather than blindly trusting, nodding and buying. This year the max out of pocket for a family is $12,900. That is the maximum any family on a HDHP would have to pay out of pocket during the year (again, not including the monthly premiums). With health related costs being the number one cause of bankruptcy in America, and since 30% of people near retirement age have less than $10,000 in assets, people need to be aware of and proactively saving for the worst. This is where the aforementioned HSAs, HRAs or a plain old savings account come in.
But are people asking the right questions or planning the right way?
Consumers of healthcare need to ask things like: Doctor, what treatment are you recommending? How much will it cost? Are you sure my insurance covers this? How much of my deductible have I satisfied? If you don’t know, how can I find out? How am I planning to save money just in case the unimaginable happens? Does my claims history show that a HDHP is a good choice for me? What about my future life plans? My finances?
HDHPs aren’t for everyone. If people are planning major life events, have accident prone kids, require long term care, the list goes on, other plans may be better fits. That though is precisely the point. People must not just act like smart shoppers - they must be smart shoppers. Then, and only then, will this smart solution begin to affect healthcare in whatever way it can function and hopefully, change the way we live as well.
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