The Impact of High-Deductible Health Plans on Employees and Their Employers
For the past 6 years or so, deductibles in health care plans have increased by 67%. High-deductible health plans (HDHP) are becoming increasingly popular among employers offering health insurance to their employees. In fact, in the past decade, the number of employees enrolled in a HDHP plan has increased from 4% in 2006 to nearly 25% by the end of 2016. (In the past, the primary "takers" of HDHP plans were younger workers who hadn't yet experienced major or chronic illnesses.)
Why the Rise in HDHP Policies?
What's driving the popularity of HDHP policies in general? One word: Costs. Total health care costs now make up more than 17% of gross domestic product (GDP). By reducing health care use, HDHP plans are offering a potential solution to slowing health care costs, the theory being that when people have to pay more out-of-pocket for health care, they'll be more choosy about when to seek it.
How HDHP Plans Affect Employees
Those with HDHP health care policies pay lower premiums for their health insurance coverage, but -- aside from basic preventive care services -- pay more out-of-pocket until they meet their plan's deductible.
The IRS defines a HDHP as a plan with a deductible of at least $1,300 for an individual and $2,600 for a family. The maximum out-of-pocket expenses cannot exceed $6,550 for an individual and $13,100 for a family. (The IRS looks at these figures each year and may adjust them annually.)
Fortunately, having a HDHP makes employees eligible for enrollment in a health savings account (HSA), a tax-deferred savings plan to help offset the cost of their increased out-of-pocket expenses. As of 2015, an individual could set aside a maximum of $3,350 per year and a family could set aside a maximum of $6,650 per year. Employees can use funds from their HSAs to cover eligible medical expenses, including most medical, dental and vision services and prescription drugs. The company managing the employees' HSA will typically issue a debit card or checks for payments to health care providers and pharmacies.
How HDHPs Impact Employers
Most employers are happy to offer HDHPs since they help them keep up with rising health care spending. According to the National Bureau of Economic Research (NBER), employers who offer HDHPs to their employees have successfully reduced their health care spending over the past three years. According to Health Payer Intelligence, more than 4 out of every 10 employers are likely to start limiting their insurance benefits to HDHPs over the next several years.
In 2015, in a blog post for Health Affairs, contributor Ifrad Islam noted that there may be trouble ahead for HDHPs. One concern is that while it's true that they help reduce health care spending in the short-run, there's a danger that they may actually have troubling consequences in the long-run because people may be avoiding seeking necessary care now. In other words, patients passing on necessary care may prevent early diagnosis end up costing the health care system more down the road. Other possible problems include:
- evidence that many patients don't fully understand how HDHPs work, specifically -- that they cover most preventative services.
- 2015 survey data from Families USA found that 25% of people are avoiding needed care and prescriptions because they couldn't afford them
- worry that many chronically ill patients can't afford their necessary medications even when their HDHPs are combined with a health savings account (HSA).
Because HDHPs are likely to continue to become more popular with employers seeking to reduce their health care spending bottom line, these problems will be challenges for an increasingly large number of employees and their families. HDHPs are here to stay, but there are still problems to be sorted out to ensure that people receive the health care they need when they need it.