A recent story on PBS caught our eye recently, about the experience of someone who had chosen a High Deductible Health Plan without thinking about the financial risk.
When Dennis, a professional dancer, chose his health insurance, he banked on being healthy and active. He selected a High Deductible Health Plan (HDHP) for its low monthly premium, and didn’t think much more about it. Health insurance? Check.
Dennis fell into the same trap others do when they select their health insurance plan on the basis of premium alone. The premium doesn’t paint the complete picture and it seems Dennis didn’t understand his potential financial exposure was. If HDHPs are going to avoid the regular barrage of bad press they’ve received, they need to be sold differently.
HDHPs have been growing in popularity because they are a lower priced option for both employers and consumers. Over 23% per cent of employers that still offer health insurance offer HDHPs (up from 15% in 2010). And HDHPs were the choice for 11.4 million Americans as of January 2011, up from 6.1 million in January 2008.
But while looking at the immediate upside of saving money on premiums, consumers need to realize the potential exposure that comes along with the lower premium. That is why many Americans are taking advantage of Health Savings Accounts (HSAs) – a tax preferred account that is used to save money for those times when health services are needed.
So when Dennis unexpectedly tore his ACL and had to pay $1600 for an MRI, the HSAs dollars would have come in handy. Rather than pocketing the savings on premiums, Dennis should have been advised to put at least some of the money into an HSA. Over 11.4 million HSAs have been opened in since 2005 as consumers use these accounts to pay for health-related expenses on a pre-tax basis, thus allowing them to save 20-35% of their out of pocket costs (depending on their tax rate).
The story on PBS highlights how a high deductible plan can be a great choice – or a bad choice – for health insurance, depending on how well the consumer understands how the plans work. While the monthly premiums are usually much lower than traditional health plans, the total financial exposure – which in this case is the premium plus the deductible – presented a real financial hardship for Dennis. Had he understood his potential exposure, he may have made a different selection, or he may have stuck with the HDHP but opened an HSA. Either way, he would have been in a better position to evaluate his ability to balance cost and his exposure to risk.
This is core to what we do at ConnectedHealth. It’s critical for consumers to understand their financial responsibilities under whichever insurance plan they select. Consumers can easily make the mistake of only looking at their fixed cost of the premium – it’s an easy way to compare plans, and it’s a bill they see every month.
But consumers need to be guided to look at the “big picture” of their total expected costs – not just their premium, but their total out-of-pocket costs before their full coverage kicks in. Otherwise, they can end up in the same situation Dennis did: not having the insurance coverage they thought they had, and not being able to cover their costs. Helping consumers understand this balancing of risk is core to our consumer tools.
One comment at the bottom of the PBS story makes this case well: someone took the time to do the math on how an HDHP is often still a better financial choice than a traditional plan (because the money saved by paying the lower premium is often enough to cover the higher deductible).
The catch? The consumer needs to make sure that money is in fact available should they need it.