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.

In my opinion, high deductible health plans are one of the best options available to small businesses and individuals looking to save some premium dollars. They certainly aren’t perfect though so I will give you a an idea of what to expect before you take the plunge.

I have personally been covered by a high deductible health plan for the past three years. I have probably saved over $10,000 in premiums over those three years compared to having a premium plan option. Of the $10,000 I’ve saved, I have had about $6,000 in claims so I am still way ahead of the game. Knock on wood!

First off, what is a high deductible health plan?

For the purposes of this post, we are assuming it is a HSA qualified plan, so it will have a minimum single deductible of $1,200 and a minimum family deductible of $2,400.

These plans also have no first dollar coverage so you pay for all services, except for preventive care until you meet your deductible. After the deductible is met, you then pay according to the plan. It may be a fixed copayment for services, a cost sharing or a combination of the two.

On With The Disadvantages

Premium Savings – Before you go all in with an HSA/high deductible plan, you need to evaluate how much you are saving in premium for how much you are going to risk. If your particular plan has a $2,500 deductible and it is only $500 cheaper than a much better plan, it may not be a good buy. Your broker should be able to help with this analysis.
Upfront claims exposure – you do your homework and the HSA is the way to go with savings of $200 per month and a $2500 deductible. Sounds great right? Maybe not. If you have a large claim in the first month, you will have to pay for that service right away before you have had a chance to save the money. You may be able to get a payment plan from the hospital or provider, but it does provide another potential issue.
Claims Paperwork – you will be self administering a lot of your claims, so you must do your due diligence to make sure all claims are paid correctly and on time. With an HSA, your provider will bill the insurance carrier and then you pay based on the approved amounts.
Receipts – the IRS requires that you save all receipts in case you ever need to substantiate a purchase. Good bookkeeping is a must!
Short plan years – this goes along with the upfront claims exposure. Most health insurance plans have a calendar year deductible, so the first year can be tricky. If your plan has a $2500 deductible and starts in November, you could potentially pay out $2500 in December and then another $2500 in January.

Those are the main disadvantages that I have come across personally since I have had my HSA. As long as the premium savings are there, most of the issues aren’t that big of an issue and you just have be able to do proper bookkeeping. Once you get the hang of it, these plans are no more work than anything else.

If you can think of anything I may have missed, or that you have personally run into, please send me a note so I can update the list.