Group Health Insurance

High Deductible Health Plan Pros and Cons

March 5, 2012 By Mike Sheeran

Insurance companies in NJ have been raising their premium rates tremendously over the las few years, so many small business and employees are considering the switch to a high deductible health plan. It is important to evaluate all of the different options and to weigh the pros and cons of having a high deductible health plan so you can make the best choice for your family.

Before I get started into the pros and cons of having a high deductible health plan, lets make sure everyone is talking about the same thing. In this case, a high deductible plan, HDHP for short is a plan that has a higher deductible than most other plans and also has a out of pocket dollar maximum that a participant may have to pay throughout the year. So one example may be a plan with a $2500 single deductible and a $5,000 maximum out of pocket. These plans are usually HSA Qualified but that is not necessary for the purpose of this post.

High Deductible Health Plan Pros and Cons

High Deductible Health Plan Pros

Significantly lower health insurance premiums. In some cases, companies and individuals can slash their premiums by as much as 50% by changing to a high deductible health plan.
Self funded employers will see much lower claims usage when moving from a rich plan design to a higher deductible option. Lower claims equals lower renewal and more savings.
Employees also benefit with lower renewal rates because the price increases won’t be passed to them in the form of higher payroll deductions.
If the high deductible health plan is HSA Qualified, there are significant tax advantages. Also see ( HSA Rules for 2012)
For employees leaving the company, another pro of a high deductible plan will be lower COBRA premiums. Don’t forget that when you leave, you now are paying 102% of the full monthly insurance premium.

High Deductible Health Plan Cons

High Deductible in the beginning of the year. This is obvious, but worth mentioning. If you have any scheduled visits shortly after enrolling in new plan, you must be prepared to pay much larger fee for your service.
High deductible at the end of the calendar year. Most plans run calendar year so if you start the high deductible plan in November, the deductible will reset in January. You now have the potentional to pay the full deductible in November and December only to have it reset in a January.
More paperwork. Since you are now paying instead of the insurance company, expect to be getting a lot of different bills. Luckily the larger claims aren’t that frequent, so your paperwork should be fairly limited.
Will you avoid care? Even when the premium savings are there, some people will outright avoid proper medical care for fear of the potential bill. I can certainly understand this but you should focus on the total maximum out of pocket and consider the worst case scenario. My personal plan had a $5,000 maximum out of pocket. I knew that under the worst case scenario, I would be paying about $400 per month if I manage to max the plan out. Not too bad if I had a $1,000,000 claim.

Now that we reviewed some of the pros and cons of a high deductible health plan, lets look at how to evaluate options.

How to evaluate different high deductible health plan options

Step 1 – get the monthly premium for the different plan options and convert them to annual

Step 2 – add the annual maximum out of pocket for each of the plans to the annual premiums

Step 3 – evaluate

Example:

Plan 1 Annual Premium is $5,000 with a $5,000 maximum out of pocket.

Plan 2 Annual Premium is $9,000 with a $3,000 maximum out of pocket

Plan 3 Annual premium is $13,000 with everything covered 100%

In this example you have the potential to pay up to $10,000 in plan 1, up to $12,000 in plan 2 or a guaranteed $13,000 in Plan 3. So despite having a higher deductible, plan 1 would be the best choice in my opinion. The other benefit is that if you don’t use the plan at all, you have the potential to save $8,000 in premium compared to plan 3.

If you have any questions on evaluating the pros and cons of a high deductible health plan, please contact Mike Sheeran for more information.

10 Advantages of Using Health Reimbursement Accounts for Small Business Owners

July 16, 2011 By Mike Sheeran

I am a huge proponent of using health reimbursement accounts(HRA’s) to lower the health insurance premiums. The concept has been around for a long time but they are recently becoming more mainstream, especially to small business owners, to help get health insurance and health care expenses under control.

***If you are unsure what an HRA is, please check out this post. Consumer Directed Healthcare 101: Health Reimbursement Accounts – HRA

If you are still unsure of whether an HRA is right for your business, consider these advantages:

***These are all assuming you have a properly set up health reimbursement arrangement per the tax code and law.

You can choose exactly what health care expenses you will be reimbursing for. You can pay towards dental care, prescriptions only, hospital deductible only, glasses, etc….You, the employer, decides what will be paid for and how much.
Contributions are tax deductible to the business
Reimbursements to employees are received tax free
Unused money can be rolled over year to year for employees
Or – you don’t have to roll it over year to year – If you don’t want to
When employees, leave, you retain the unused funds, unlike a health savings account
You don’t have to pre-fund an actual account – you just pledge that you will reimburse for medical expenses and then pay as the claims come in.
You set the limit on how much to reimburse each employee, so you know your maximum expense per year.
Since all of the money pledged will likely not be used, you may be able to fund a higher amount than with an HSA.
Employees don’t actually have to be covered by the health plan to participate in HRA

Ultimately, the great thing about using the health reimbursement arrangement is flexibility. It is the perfect way to enhance your plan and reimburse employees for chosen health related expenses. Most importantly, your savings can be up to 20-30% over a traditional health insurance program since you are only paying for claims as they are incurred and not giving all of your money to the insurance carrier up front.

If you would like more information on HRA’s or any of your health insurance needs, please contact me here.

Everything You Ever Wanted to Know About N.J. Continuation Coverage

July 6, 2011 By Mike Sheeran

If you have recently lost your health insurance coverage because you were laid-off or have quit, you have the option to continue your coverage via NJ Continuation or COBRA.

If the company you worked for had less than 20 employees for more than 50% of year in the previous calendar year, than you are eligible for NJ Continuation rather than COBRA.

Qualifying for NJ Continuation – a list of qualifying events

You must be terminated for a reason “other than for cause”
Your hours have been reduced to less than 25 per week, making you part-time.
Death of the employee – dependents may continue
Dependent child ages off plan – older than 26

Who is eligible to continue coverage?

Typically, anyone who was covered by the plan prior to the loss of coverage including all dependents.

How long may you continue your coverage?

Normal Termination: Up to 18 months
For death of primary card holder : Dependents may continue up to 36 months.
Divorce: Spouses that lose coverage through a divorce may continue up to 36 months.
Disability: Employees deemed disabled under the Social Security Act may continue up to 29 months.

Cost

Employees are responsible for 100% of the premium and employers may charge an additional 2% administrative fee. For disabled employees, employers may charge up to 150% of the premium.

When enrolling, the employee has up to 30 days to make first premium payment after notifying the employer they would like to continue the coverage.

When does the coverage end?

There are a few ways the coverage can end.

Employer terminates all the health plans offered.
Continuing subscriber requests termination
Subscriber fails to make timely premium payment
Subscriber exhausts the time allotted to continue(18,29 or 36 mos)

Notes For Employers

Employers must notify employees of their right to continue coverage but not required to notify dependents.
The employer cannot require the first premium payment be made immediately. Employee has up to 30 days to make first payment.

Notes for Employees

You must notify your prior employer you would like to continue coverage within 30 days of receiving your continuation paperwork.
You must make your first premium payment within 30 days of notifying that you will be continuing coverage.
Each month you must make a timely payment and not exceed your 30 day grace period payment window.
Premium payments should be made directly the employer and not to the carrier.

Additional Resources

If you have any questions regarding NJ Continuation please contact me directly and I will do my best to assist you.

Additional information from the State DOBI can be found here.