High-deductible health plans (HDHP) are among the fastest growing health plans in both the individual and group markets. For calendar year 2017, the IRS defines a HDHP as any health plan with a minimum deductible of $1300 for individuals and $2600 for families. HDHPs generally do not provide coverage for services until after the enrollee spends down the deductible. However, under Section 2713 of the Public Health Service Act, private health plans may not impose patient cost-sharing requirements with respect to certain recommended preventative services. A 2013 notice from the IRS clarifies that a plan may therefore cover such services before an enrollee spends down his or her HDHP deductible without affecting the plan’s qualification as a HDHP for purposes relating to Health Savings Accounts (HSA). Notably, this preserves for HDHP enrollees the option of establishing a HSA, into which an individual or the individual’s employer is eligible to make tax-favored contributions and which can be accessed when paying for out-of-pocket medical expenditures.
Who benefits from HDHPs? A HDHP’s lower monthly premiums and greater consumer control makes HDHP’s particularly attractive to healthy consumers who can reasonably anticipate a limited need for non-preventative medical services over the course of a plan year. On the other hand, persons suffering from chronic diseases may want to avoid (or reconsider) enrolling in a HDHP. Since essential care management services are not covered until the high HDHP deductible is met, patients with chronic conditions will likely experience significantly greater out-of-pocket medical expenses than he or she would in a traditional health plan with a significantly lower deductible. In fact, recent research suggests that enrollees in high-deductible plans pay on average 1.5 times more in out-of-pocket costs than enrollees in traditional plans.
High-Deductible Plans and Demand-Side Cost Control
HDHPs have grown in popularity since Congress established HSAs to complement HDHPs under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA). At the time of the MMA’s enactment, lawmakers hoped that a HSA, along with the coverage structure of a HDHP, would reduce overall medical expenditures within the healthcare system by incentivizing enrollees to make more deliberate decisions regarding their utilization of medical services.
According to the Kaiser Family Foundation, 29% of workers with employer-sponsored coverage are enrolled in some form of a HDHP and HSA, up from 17% in 2011. Typically responsible for paying 74% to 85% of employee premiums, employers are increasingly offering HDHPs and HSAs because monthly premiums are low and out-of-pocket costs are shifted over to the employee. Meanwhile, tax-free HSA dollars result in lower out-of-pocket expenses at the point of service.
Employers can also take advantage of covered preventive care benefits by requiring that employees designate a primary care physician or receive essential screenings to be eligible for contributions.
Decreased Utilization, Increased Out-of-Pocket Costs?
Notwithstanding the hope that HDHPs and HSAs would lower overall medical expenditures within the healthcare system, a recent study by the Health Care Cost Institute revealed that enrollees in HDHPs were responsible for 24% of their medical costs between 2010 and 2014, compared to 14% in traditional plans. Further, while enrollees in traditional plans made over twice as many doctor visits as HDHP/HSA enrollees for non-preventive care, the study found that enrollees in high-deductible plans spent an average of $1030 in annual out-of-pocket costs, whereas enrollees in traditional plans spent an average of $687.
Higher Cost-Sharing Disproportionately Reduces Access for Low-Income Workers
According to a recent analysis by the Employee Benefit Research Institute, workers enrolled in HDHPs and HSAs who made $50,000 or less visited the doctor less than half as many times as workers who made $100,000 or more.
Lower-income employees generally enroll in HDHPs and HSAs to take advantage of the lower monthly premiums. While these employees are less likely to seek non-preventive services than higher-income workers, they are also less likely to utilize the preventative services that, as noted above, are covered from a HDHP’s effective date. Critics of the plans suggest that enrollees may have difficulty identifying which services are covered under complicated HDHP/HSA benefit designs. Further, lower-income individuals may delay or avoid preventative care screenings because physicians might perform additional services or provide referrals that are not covered.
The analysis also revealed that lower-income HDHP/HSA enrollment was associated with an increase in emergency department visits and inpatient hospital admissions, indicating that preventative care remains inaccessible for many lower-income workers.
Lawmakers Pushing for Reform Introduce New Rule in Congress
In July 2016, a bipartisan bill was introduced in Congress that would expand HDHP and HSA benefits to cover chronic disease care (e.g. exams, prescriptions drugs) before enrollees fulfilled their HDHP deductible requirements. The legislation was introduced in response to growing concerns that high-deductible plans limit access to necessary treatments and financially burden those with chronic diseases, a patient population that now constitutes almost half of all U.S. adults.
Supporters from both sides of the aisles are optimistic that the bill will become law. However, critics argue that even if the legislation is passed, coverage for chronic conditions will inevitably contribute to premium spikes. Additionally, insurance companies have few incentives to design plans for those with chronic conditions who require regular care.
For now, high-deductible plans that provide limited coverage are the most common option in the Affordable Care Act’s individual and small-group markets. As open enrollment for 2017 health coverage beings November 1st, consumers should seriously consider the plan’s advantages and limitations before enrolling in a HDHP.
New York Times: “Health Savings Accounts Require Close Attention”
Health Affairs: “Health Policy Brief” (February 2016)
Note: This blog post has been revised to clarify that the IRS requirement referenced in the original version relates to the IRS’s determination that a health plan may be classified as a high deductible health plan (HDHP) even if the plan, in compliance with Section 2713 of the Public Health Service Act, provides coverage for “preventative health services” to plan members who have not satisfied their HDHP deductible requirement.”