As medical insurance costs continue to grow for both employers and employees, high-deductible health plans (HDHPs) and other forms of consumer-driven health plans (CDHPs) are getting more and more popular. Consumer-driven health plans require individuals to take a greater role in making their health care decisions, and to bear more of the cost of relatively minor medical issues. The expectation is that they will make better health care decisions with more sensitivity to cost.
HDHPs are special health insurance plans that require their insureds to meet relatively high expense thresholds before the insurance company will begin paying benefits for covered health care. In exchange, HDHP insureds and beneficiaries who qualify are allowed to contribute to special tax-advantaged accounts, called health savings accounts (HSAs), to help them accumulate cash to pay the deductibles themselves, in the event of a health care event.
These plans have proven to reduce eventual claims, resulting in premium savings for employers and employees alike. According to data from Mercer LLC and the National Business Group on Health – an association of large employers – the average medical costs per employee enrolled in a CDHP linked to a health savings account averages $9,228 compared with $11,212 for PPOs and $11,248 for HMOs.
These plans are also gaining traction in the individual market as well: The National Business Group on Health estimates that more than eight out of ten large employers plan to offer an HDHP or other variant of consumer-driven health plan in 2016. Of these, more than a third plan to offer HDHPs together with an HSA as the only option.
Why? In a word: Savings.
The average annual premium for individual health insurance plans last year was $6,435. But for those enrolled in HDHPs with health savings accounts, the average premium was $5,762 per year in 2015, according to the Kaiser Family Foundation.
For plans that cover the whole family, the premium savings that HDHPs offer were even greater: The average head of household was paying $19,003 for family insurance coverage. But HDHP premiums were just $16,737 per year, for savings of $2,266 per year.
Thanks to the premium savings, these plans have proven to be a hit with the American public, and more and more people are flocking to such consumer-driven health insurance plans. The percentage of American workers enrolled in an HDHP with a savings option has increased from zero in 2015 to 29 percent in as of last year.
Employers have been leading the charge, migrating workers from more expensive PPO plans to HDHP plans with either a Health Savings Plan or Health Reimbursement Arrangement attached to the plan. The result is a lower out of pocket premium for similar coverage for the employer – and often for the employee as well. However, deductibles are higher, so in the end the worker winds up shouldering more of the burden. Average deductibles for individual plans range from $917 for HMO plans to $1,028 for PPOs to $2,199 for HDHPs with savings options.
In compensation, though, some employers are taking some of the money they save in the form of lower health care premiums, and using them to beef up employee health savings accounts. 14 percent of covered workers in an HDHP with a health reimbursement arrangement and 7 percent of covered workers enrolled in an HDHP with a health savings account receive employer contributions to their plans at least equal to their deductible. Further, about 47 percent of workers with HRAs and 28 percent of covered workers with an HSA receive enough contributions to their accounts from their employer that it reduces their annual deductible out of pocket costs to $1,000 or less – putting them in the neighborhood of HMOs when it comes to out of pocket costs.