Increasingly, US employers are turning to high-deductible health plans (HDHP) to control the rising health benefit premiums of plans they offer to employees.
To incentivize employee enrollment in HDHPs, many employers are pairing these high-deductible plans with health savings accounts (HSA), which are intended to help fund potential out-of-pocket costs resulting from an HDHP. HDHP/HSA enrollment has increased significantly over the past five years, with Kaiser suggesting a jump from 20% of covered workers using HDHP/HSA in 2013 to 29% in 2018.
While the HDHP/HSA combination appears good at face value, the reality is that HSAs don’t always solve the problem of out-of-pocket costs associated with an HDHP. The average individual deductible for an HDHP is $2,500, whereas the average employer HSA contribution is around $600.
“Employer contributions to health accounts aren’t typically enough to offset an employee’s deductible,” explained Ed Walker (pictured), CEO of ArmadaCare. “The average HSA contribution is well short of most deductibles and inadequate in the event of a more significant and unexpected health event. There’s also a timing issue if you hit your deductible before funds are accumulated in the HSA. Employees are then in a position where they’re assuming the initial risk instead of having it backed by insurance. This can cause employees a lot of financial worry.”
To help employers, employees and their insurance representatives understand the realities of HDHPs with HSAs, ArmadaCare has published a free, downloadable whitepaper for brokers to share with their clients. The infographic addresses how the HDHP/HSA combination can create a false sense of security, the drawbacks of HSAs, and the benefits of back-filling insurance deductibles.
“The idea behind the HDHP/HSA is that people have the opportunity to save tax-free money to use to pay for medical care, but they also have no choice but to use their own money to pay for their healthcare (except preventive care) before they meet their HDHP deductible,” Walker told Insurance Business. “The hope then is that people will use their healthcare dollars wisely — shopping carefully for medical care and avoiding unnecessary expenses.
“Research indicates, however, that people with HDHPs generally aren’t ‘shopping’ for healthcare the way they would for other commodities. That is, they aren’t getting price quotes ahead of time or comparison shopping across multiple providers before scheduling a medical appointment. The market just isn’t that transparent. Part of the intent for HDHPs/HSAs is to drive consumerism — but it’s not the reality. The reality is that many people delay getting care, which often causes more health issues and can increase out-of-pocket costs above where they’d be if they had sought care when the health issue first arose.”
ArmadaCare offers what it describes as “a better solution” in the form of supplemental expense reimbursed plans. These annual plans enable employers to back-fill deductibles while still controlling benefit costs. Walker commented: “It’s tax efficient for both the employer and employee, and cost effective, as the employer stays in control. The employer doesn’t have to back-fill the whole gap if they choose not to, and they can select different plans for different groups of employees to get right-sized coverage.”
What if an employer is already committed to offering HDHPs with HSAs and doesn’t want to change that strategy? Supplemental expense reimbursed plans can still come into play.
“Our supplemental expense reimbursed plans can still be offered as part of the mix,” noted Walker. “Plus, we’ve just rolled out a new HSA-compatible version of our supplemental plans. Employers and employees need more options than what today’s one-size-fits-all primary plans offer, and that’s what we bring to the table.”
To learn more about HDHPs/HSAs and the benefits of supplemental expense reimbursed insurance, you can download this white paper.