High-deductible employer sponsored health insurance: is it worth it?
8 Minutes
Team Curative
Apr 20, 2023
Choosing the best health insurance plan for your company or business is an important decision. A high-deductible health plan (HDHP) might seem like a good option because it’s generally cheaper for businesses overall and employees on the front end. But these plans are only successful when employees are in ideal health with minimal medical expenses. Let’s drill down a bit into the pros and cons of high-deductible health plans for you and your employees. Your employees are part of what makes the Lone Star State special, so let us help you find the best choice in health insurance Texas talent deserves.
What is a high-deductible insurance plan?
A high-deductible insurance plan is a type of health insurance that requires the policyholder to pay a higher out-of-pocket deductible before the insurance company begins to cover the costs of medical expenses.
Typically, high-deductible, employer sponsored health insurance plans have lower monthly premiums than traditional insurance plans. This means either the business or policyholder pays less each month for insurance coverage but the policyholder is responsible for more of the upfront costs when they need medical care. The deductible amount can vary depending on the plan but is usually several thousand dollars annually.
Once the policyholder has paid the deductible, the insurance company covers most of the remaining costs, subject to limitations or exclusions in the policy. Some high-deductible insurance plans may also offer certain preventive care services at no additional cost, even before the deductible is met.
High-deductible employer sponsored health insurance plans are often paired with a Health Savings Account (HSA), which allows the policyholder to set aside pre-tax dollars for qualified medical expenses. This can offset the out-of-pocket costs associated with a high-deductible insurance plan.
Origin of high deductible health plans
High-deductible health care plans were created to encourage consumers to make
smarter decisions about their health care. By taking on a higher burden of cost sharing, the theory is consumers will demand higher quality services at a lower cost and use less unnecessary care.
Impact of high deductible health plans
Studies have shown a mixed impact of high deductible health plans. According to a study by the National Bureau of Economic Research, a large employer switching from a $0 deductible to an HDHP drives a 12 percent annual spending decrease in the first year. However, the savings came from the avoidance of preventive care. Members reduced preventive spending (e.g. 32 percent reduction in indicated colonoscopies) more than services determined to be wasteful (e.g. only a 17 percent reduction in imaging). Ultimately, consumers are not price shopping or making smarter decisions. Rather, they are putting off preventive care, leading to short-term decreased spending, but prevention or early diagnosis is much less costly than a more serious diagnosis down the road.
Monthly premiums
Health insurance premiums are what employees and/or their employers pay an insurance company for health insurance coverage. In exchange for paying the premium, the insurance company agrees to cover a portion or all of the policyholder's health care expenses, depending on the terms of the policy.
The reason employer- sponsored health insurance plans with high deductibles typically have lower premiums than plans with low deductibles is that high-deductible plans require policyholders to pay more of their health care costs before insurance coverage kicks in. This means that insurance companies have less financial risk and can charge lower premiums.
On the other hand, low-deductible plans generally have higher premiums because the insurance company assumes more of the financial risk and compensates by charging higher premiums.
While high-deductible plans may seem more attractive due to lower premiums, they may cost both businesses and employees more in the long run. A study at USC Schaeffer Center for Health Policy and Economics found that the likelihood of financial trouble was high for all enrollees on the high-deductible plans, but especially those with low income or chronic conditions.
Out-of-pocket costs
Health insurance out-of-pocket costs are the expenses a policyholder must pay for health care services and their monthly insurance premium. These costs can include deductibles, co-payments, and coinsurance.
A deductible is the amount the policyholder must pay out-of-pocket for health care services before their insurance coverage kicks in. For example, if a policy has a $3,000 deductible, the policyholder must pay the first $3,000 before the insurance company starts paying for any covered services.
Co-payments are a fixed amount that the policyholder pays for certain health care services, such as doctor visits or prescription drugs. For example, a policy may require a $20 co-payment for a doctor's visit.
Coinsurance is a percentage of the cost of health care services that the policyholder is responsible for paying after they've met their deductible. For example, a policy may require the policyholder to pay 20 percent of the cost of a hospital stay.
High-deductible health insurance plans have higher out-of-pocket costs than traditional health insurance plans. The policyholder pays a minimum deductible amount—typically several thousand dollars—before the insurance company pays for any remaining covered medical services. Once the deductible is met, the policyholder may still be responsible for other out-of-pocket costs such as co-payments and coinsurance.
In addition, high-deductible health plans may have higher out-of-pocket maximums than traditional plans, meaning the policyholder may have to pay more in total out-of-pocket costs before their insurance company covers remaining health care expenses.
Comprehensive coverage
Comprehensive coverage typically includes preventive care, such as routine check-ups and vaccinations, as well as treating illnesses and injuries, hospital stays, and prescription drugs. However, the specific services covered can vary depending on the policy and insurance provider.
High-deductible health insurance plans may have different coverage limitations and exclusions than traditional health insurance plans. For example, some plans may not cover certain types of services or may have restrictions on the types of health care providers that policyholders can see.
Before enrolling in a high-deductible health insurance plan, review the policy and understand the coverage limitations and out-of-pocket costs. Compare the plan to other options to ensure that it meets your health care needs and financial situation.
Preventive care engagement
Preventive care is an important component of most employer sponsored health insurance plans, including high-deductible health plans. These types of services are designed to promote good health and identify problems before they become more serious (and more expensive).
While some preventive services are covered at no cost to the policyholder, others may require payment of a co-payment or coinsurance if they are received outside of the annual wellness visit. If the policyholder hasn’t yet met their deductible, they may be responsible for the full cost of preventive services until they do.
For employers: Is a high-deductible health plan right for your business?
Important questions for employers when choosing a health insurance plan:
Will this plan meet the health and financial needs of my employees?
Am I getting the most long-term value out of my health insurance provider?
Will these benefits be competitive enough to attract and retain top talent?
For employees: Is a high-deductible health plan right for you?
Important questions for people when choosing an employer sponsored health insurance plan:
What health care services must be covered by your insurance plan?
Does a high-deductible health plan match your budget?
Do you have the ability to cover unexpected medical emergencies?
Choosing the best employer sponsored health insurance
It is important to consider access and affordability when choosing a health insurance plan, as well as the impact on your bottom line long term. Ultimately, the choice of health insurance comes down to what is best for the health of your company's greatest asset—your employees.
About Curative
Curative wants people to love using their health benefits. Our health plan actually delivers better health through affordability, engagement, and simplicity.
No copays. No deductibles. No...really. Curative is changing the way we view health insurance.
To learn more information about adopting Curative’s plan for your employees, visit us here.
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References
Effros, Rachel, Increase Cost-Participation by Employees (e.g., Through High-Deductible Health Plans). Santa Monica, CA: RAND Corporation, 2009. https://www.rand.org/pubs/technical_reports/TR562z4.html.
High deductible health plan (HDHP) - glossary. High Deductible Health Plan (HDHP) - Glossary | HealthCare.gov. Retrieved from https://www.healthcare.gov/glossary/high-deductible-health-plan/
Linan, S. (2018, April 5). High-deductible health plans raise risk of financial ruin for vulnerable Americans, study finds. USC News. Retrieved from https://news.usc.edu/140182/high-deductible-health-plans-raise-risk-of-financial-ruin-for-vulnerable-americans-study-finds/
Preventive services covered by private health plans under the Affordable Care Act. KFF. Retrieved from https://www.kff.org/womens-health-policy/fact-sheet/preventive-services-covered-by-private-health-plans/
Should you choose a high-deductible health plan? NerdWallet. Retrieved from https://www.nerdwallet.com/article/health/high-or-low-deductible-health-insurance-plan
What is a high-deductible health plan (HDHP)? healthinsurance.org. (2023, March 9). Retrieved from https://www.healthinsurance.org/glossary/high-deductible-health-plan/
Zarek C. Brot-Goldberg & Amitabh Chandra & Benjamin R. Handel & Jonathan T. Kolstad, 2017. "What does a Deductible Do? The Impact of Cost-Sharing on Health Care Prices, Quantities, and Spending Dynamics*," The Quarterly Journal of Economics, vol 132(3), pages 1261-1318.
