High-Deductible Health Plans: A HealthCentral Explainer
In June 2012, the United States Supreme Court upheld the Affordable Care Act, bringing with it countless cheers, jeers and quite a few misconceptions. While the law will not insure all Americans, it does mandate that both private and public insurance plans be extended to cover up to 20 million of the previously uninsured, including employees of small businesses, those with pre-existing conditions who may not qualify for public programs and just-out-of-college folks yet to find full-time work with benefits.
One of the more controversial aspects of the law is the individual mandate, in which those without insurance after 2014 will be assessed a fee (regardless of its status as a "tax" or "penalty"). With a new influx of insurance candidates, costs likely will rise dramatically. The United States already has the highest amount of spending allotted to health care, both in terms of actual dollars ($2.6 trillion) and as a percentage of GDP (16%) (Kaiser.edu). There has been exponential rate of growth over the past several decades and costs are projected to increase even more with an aging population becoming increasingly dependent on the health care system.
High-Deductible Health Plan: The Basics
In 1988, 73 percent of employment-based health care coverage was through "traditional" plans, 16 percent through health management organization (HMO) plans and 11 percent through preferred-provider organization (PPO) plans. By 2009, only 1 percent was represented by traditional health plans, 20 percent by HMO plans, 60 percent by PPO plans and 10 percent by point of service (POS) plans. In addition to these four options, 2006 saw the first measurable statistics for high-deductible plans, representing 8 percent of employment-based insurance plans by 2009 (Kaiser Slides, 2009). It is estimated that today, nearly half of all workers in small businesses have high-deductible plans. (Kulkarni, 2012). A changing landscape, indeed.
High-deductible health plans, also referred to as consumer-directed plans, are fairly simple. Consumers pay very low premiums with very low employer contributions, but pay fees when visiting the doctor. These patients still pay a small premium to the insurance company in exchange for use of "negotiated" pricing with doctors and pharmacists, but this amounts to a small fraction of the hundreds of dollars in premiums that may be owed in a more traditional plan.
By law, high-deductible plans provide free access to vaccines and check-ups. But beyond that, the insurance company does not cover much. Plans have a varying deductible – often in the thousands of dollars – that patients are responsible for before the insurance company begins to cover anything. Even after the deductible is met, the patient may still owe some payment-per-procedure through co-insurance, though patients will not be on the hook for the entire bill. There is a cap on total spending, as mandated by law, at $6,050 for an individual and at $12,100 for a family (Kulkarni, 2012).
These plans are referred to as consumer-directed plans by supporters because, in theory, the consumer has significantly more invested in his individual health due to the immediate financial implications. Patients may be less likely to undergo unnecessary procedures and will tend to express a greater say in what a doctor does or does not do.
Employers Support High-Deductible Plans
In general, employers like these plans since they require a very low contribution from the company. Small businesses, as noted, often utilize this type of plan, as the employer generally pays significantly less than with traditional, HMO, PPO or POS plans. Now that small businesses will be required to provide coverage for all employees under the Affordable Care Act, many will likely provide the option that will cost the company the least amount of money—a high-deductible plan.
The Government Supports High-Deductible Plans
For the reason mentioned above, the federal government wants to limit health care spending in the future. To that end, high-deductible plans should encourage patients to be more invested in his or her own health. By making individuals more directly responsible for their health care costs, they should be less prone to over-utilize health services. Also, they also should be more likely to be more proactive in dealing with their personal health and less likely to engage in risky behavior. Overall, a healthier population is good for the country.
The Patient Supports High-Deductible Plans… Sometimes
There are certainly benefits of a high-deductible plan for patients. In short, if the patient is healthy and willing to gamble on his or her health, the high-deductible plan makes sense. Pay less up front to wager that future costs will continue to be low (or non-existent). This applies to many of the soon-to-be-insured young people who do not want to pay increasingly high premiums for services that are not utilized.
But it is not a good option for those with a chronic condition. When costs are guaranteed to exist – such as for a diabetic –the patient would take on the large portion of the bill, and often blow past the deductible in a very short time. In fact, a 2011 report published in Health Affairs found that high-deductible health plans whose members have chronic conditions face "substantial" financial burden (Galbraith et al, 2011). Though there is a cap on spending, $6,050 is still a lot of money for an individual, likely more than what premiums for a more traditional plan would cost.
High-deductible plans are not well-suited for low-income families who may not have the necessary financial resources to absorb an expensive medical catastrophe, should that occur. A plan with an upfront premium—which, in this case, would likely be subsidized by the government, would be a smarter investment.
Overall, many people will probably roll the dice and choose a high-deductible plan. For a young, healthy American who will be required to have health insurance, a plan with low upfront costs will often be a sensible choice. That’s not the case for those with long-term conditions or who tend to utilize medical services frequently.
Galbraith, A., Ross-Degan, D., Soumerai, S., Rosenthal, M., Gay, C., Lieu, T. (February 2011). "Nearly half of families in high-deductible plans whose members have chronic conditions face substantial financial burden." Health Affairs, vol. 30 (2): 322-331.
Kaiser.edu. (2012). "U.S. health care costs." KaiserEDU.org. Retrieved from http://www.kaiseredu.org/issue-modules/us-health-care-costs/background-brief.aspx.
Kaiser Slides. (15 September 2009). "Distribution of health plan enrollment for covered workers, by plan type, 1988-2009." Kaiser Family Foundation. Retrieved from http://slides.velir.com/chart.aspx?ch=1052.
Kulkani, Shefali. (27 April 2012). "Quick facts about high-deductible health plans." Kaiser Health News. Retrieved from http://www.kaiserhealthnews.org/Stories/2012/April/27/high-deductible-health-plans.aspx.