High Deductible Health Plans Here to Stay?
November 13, 2011
Open enrollment is here again and we had to make a decision about using a high deductible health plan (HDHP) before last Friday’s deadline. Last year was the first time that we used a HDHP with a health savings account but this year we were considering switching back to a traditional insurance plan since we’re anticipating some big health care costs in 2012.
Unfortunately the costs of healthcare keep going up so my employer keeps raising the premiums, the lower the deductible of the plan the bigger the cost hikes. This table shows the annual rate increase of each plan and also the plan’s deductible.
The plan with the lowest deductible has by far the highest premiums and the highest increases each year. From 2011 to 2012 the cost of the premiums for the low deductible plan went up 22 times that of the increase of the high deductible plan – ouch.
Here are the monthly costs of each plan to my employer, you can see that they have to pay more for the low deductible plans and pass that cost onto us. Their costs go up every year so that means our health insurance costs go up as well.
High Deductibles Here to Stay?
When I first started a few years ago we were about to have a baby so I chose the plan with the lowest deductible. I knew we were going to be spending a lot of money and the premiums for the low deductible plan were much more reasonable back then. I put all the numbers in a spreadsheet and it made the most sense to choose the low deductible plan.
Fast forward to 2012 (when we anticipate another big year of expenses) and after running the numbers, it makes no financial sense at all to use any plan other than the HDHP. Based on what I saw in my comparison, it seems like the HDHP may always be the best plan in the future. Here’s how I came to that conclusion:
Comparing Health Insurance Plans
How I determined the best insurance plan for us was by comparing both the lowest potential cost and the highest potential cost. The lowest potential cost would be if we paid just the premiums and never used the insurance once during the year – the HDHP was the lowest by far.
Then I estimated the highest potential cost by adding the amount of the deductible to the annual premiums. (This isn’t a totally accurate estimate of costs because once we reach the deductible, they pay 90% of the cost and we’re responsible for the remaining 10%. However, that’s the same for each plan so for comparison’s sake it doesn’t make enough difference in our case). The annual premiums of the HDHP are low enough that even after adding them to the deductible of $2400 it still turned out to have the smallest of the highest potential cost.
Health Savings Account Balances
Since we opted for the high deductible health plan, it means that we qualify for a health savings account (HSA). Ours has been great so far but a word of warning to anyone considering a HSA. If you have a big medical expense before you’ve deposited enough in your health savings account, you have to find the money to pay for it from somewhere else.
This is different than how things work with a flexible spending account (FSA). In an FSA, you have access to the full amount of the funds that you committed to deposit over the course of the year, even on January 1st. Since this isn’t that case with an HSA, you want to make sure you have some extra cash lined up the first year you open it to cover costs that might come up before you’ve built up funds in your account.
For example, if your deductible is $2400 that means that ideally you’d have that much money available on January 1st to cover any expenses that came up. Fortunately for us, this is our second year and last year I actually contributed the maximum amount possible into our HSA this year, $6150.
We did have some expenses to pay out but we still have a large chunk of that money sitting in the account. So we’re covered pretty well because our deductible is $2400 and we have about double that in our health savings account.
Preparing for a HSA
Not all employers offer high deductible health plans and health savings account, but with health care costs continually rising, I imagine someday most people will have that as a choice. At some point it will be probably prohibitively expensive to use health insurance plan with low deductibles because the premiums will be too outrageous.
One thing you could do in anticipation of having access to an HSA would be to start saving some money on the side so you’ll have it around that first year when you have no balance in your HSA to cover expenses.
One of the benefits of a health savings account is that the money you contribute is pre-tax, so every dollar you put into that account reduces your taxable income. You wouldn’t see that tax benefit from any money you start saving now outside of an HSA but it woud provide you a cushion during that first year of having high deductibles.
Something else to consider are are the costs of the HSA. Every month this year our health savings account charged us a $3 fee, which seems pretty steep to me to pay just to have an account. Often once you reach a certain minimum balance, in our case $5000, that fee is waived.
Starting next year, our employer is covering the cost of that fee. So if your company offers an HSA option or is going to, talk to your employer’s human resource department about having it covered.
So, based on what I’ve experienced, high deductible health plans are here to stay. If you don’t have one already, and are anticipating using a HDHP and an HSA in the future, keep in mind the HSA costs and that you have to cover that cash gap after first opening the HSA.
What’s your experience been with a HDHP and a HSA? Does your company offer them as options? Do you wish they would?
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