It’s a puzzling trend to say the least: In clear disregard of the “reversion to the mean” principle, increases in health-insurance premiums don’t seem to be moderating — at least not in any meaningful way.
Chronic illness and high utilization seem to be two primary and closely related culprits for this phenomenon: The average American waits until his symptoms literally stop him in his tracks. He then spends the next five to 15 expensive years attempting to fix it.
A third likely culprit is a lack of financial incentives to remain healthy. The American healthcare system makes it difficult — almost impossible — to see a chiropractor, nutritionist, exercise physiologist, or dentist to stay healthy. Yet, at the first sign of a critical problem, the system pays for the Ritz-Carlton of diagnostics and treatment — all after the fact.
A solution to this problem was introduced a few years ago — high-deductible health plans (HDHP).
HOW HDHPs WORK
In an HDHP, the employer and/or employee bear the responsibility each year of meeting a high deductible before benefits kick in. The amount of deductible depends upon the plan selected. For an individual employee, the minimum high deductible for annual healthcare expenses is $1,100, and the maximum is $5,600. (Family deductibles are twice the individuals.)
The costs of prescriptions, physician appointments, surgical, and hospital stays go toward meeting the deductible amount. Preventive care (well-care, as it is often called) is the notable exception, and is covered immediately. This is known as first-dollar coverage.
The majority of carriers currently do not cover chiropractic care under well-care provisions.
When a covered employee’s expenses reach the amount of the annual deductible, the insurance goes into effect and covers 100 percent (or close to 100 percent, depending upon the policy) of all additional claims for the year. (Prescriptions, however, still have a co-pay.)
Expenses incurred under an HDHP may be funded either by cash (after-tax), a health savings account (HSA, which can be funded by pre-tax dollars by the employee, employer, or combination), or health reimbursement arrangements (HRA, paid for by the employer with before-tax dollars).
An HSA or HRA is an instrument of payment and is not required for an HDHP, although an HDHP is required (by the IRS) before an HSA or HRA can be established.
HSAs may be funded in advance or as needed by the employer or employee — up to $2,900 per year for a single employee or up to $5,800 per year for family coverage. Coverage must be equal among employees.
HRAs are funded only as needed and only by the employer, and equal coverage rules apply here as well.
Your employee benefits adviser can walk you through scenarios showing who, what, and how the HSA and HRA can operate relative to cost controls. (Generally, when an employer uses an HRA, it is with the understanding that employees will pay a portion or all of the plan’s monthly premiums. HRAs are especially helpful to offset expenses when employees purchase individual healthcare policies instead of the employer providing group coverage.)
Remember, though, that premiums for HDHPs are 30 percent to 50 percent lower than for traditional plans.
When an HSA is utilized, the employer will typically pay for some or the entire premium of the high-deductible policy, and may also agree to fund some or all of the HSA. Ultimately, the HSA is owned by the employee and goes with the employee if he leaves the company.
KEY BENEFITS OF AN HDHP
HDHPs offer employers and employees a number of benefits:
• Lower costs. Instead of paying in advance for coverage the employee may not utilize, you pay for coverage for so-called catastrophic events only. The word “catastrophic” is misleading, however, since deductibles for families can be as low as $2,200. The cost of catastrophic coverage is considerably less than traditional plans.
Employees file fewer claims when they have HDHPs than with traditional health insurance, so administrative costs are lower for insurance carriers. Those lower costs are reflected in lower premiums.
• More help for employees. Because you save by paying only for catastrophic coverage, you may choose to take the balance of what you would have paid and put it into an HSA for employees, which your employees can use as needed.
• Control of care. Philosophically, HDHPs put control of care back on employees. Employees have the account to use (and can also contribute to it with pre-tax dollars) on any type of healthcare need — from prescriptions, to office visits, to procedures that all go toward their deductible.
• Portability. Employees can take the account with them if they leave your company. The money in the account belongs to them, and the account is fully portable.
• Earned Interest. If they have no medical expenses, the balance in HSA earns interest and may seve as a supplemental retirement-savings vehicle.
HDHPs do have some limitations. Many physicians are opposed to them because theses plans place their fees under greater security. Pharmaceutical companies do not like them because small co-pays create a reliance on “lifestyle” drugs.
And employees are concerned because they are unaccustomed to playing such an active role in their healthcare decisions
If HDHPs are explained properly, however, employees get excited that by managing their health they should expect to save money over the alternative of premiums.
Matthew S. Clement is a financial planner and employee benefit adviser in Rockland County in New York. He may be reached at 845-942-8578 or by e-mail at ClementM@FinancialNetwork.com.
Want more information on HDHPs? Go to www.ChiroEco.com/hdhp.