If you don’t know about high-deductible insurance plans, you will soon. These controversial plans are increasingly offered by employers. Also known as consumer-directed health plans, they offer clear cost-saving benefits, such as lower premiums and the opportunity to manage increasing health care costs.
But if you get seriously sick, you’ll be socked with high deductibles.
Understandably, the plans get mixed reviews.
Deductibles as high as $10,000
“Some employers offer no other offerings,” says Judy Dugan, research director at Consumer Watchdog. “The plans are more profitable for insurers. People buy these plans because they’re desperate to get lower premiums.”
There’s no doubt that high-deductible insurance plans are on the rise, though. According to the Kaiser Family Foundation, they’ve tripled in number within four years.
So for many people, they’re a new concept. “There’s confusion about how they work,” says Paul Fronstin, a senior research associate at the Employee Benefit Research Institute. “But the longer people are in the plans, the less complicated they are.”
True to their name, high-deductible plans have deductibles that range from a low of $1,000 to as high as $10,000. Usually, big companies also offer different plan levels, ranging from minimum deductibles to higher ones.
Plans are best paired with health savings accounts, or HSAs, where you and your employer can put aside pretax dollars for medical expenses. Contribution limits for HSAs in 2011 are $3,050 for single individuals and $6,150 for families. However, affluent people are most apt to sock money away into HSAs, according to Government Accountability Office reports.
That means some people must dig deeper into their pockets — or go without medical care. “The real downside is that every study of these plans has shown that people hesitate to go to a doctor,” says Dugan.
But there are pluses for the duly warned. “If you’re not sick very often, you may be better off in them,” says Helen Darling, president of the National Business Group on Health. “You’ll save money.”
Here’s a rundown of the benefits and drawbacks.
Save money on premiums. This is probably a high-deductible plan’s biggest advantage in today’s pricey health insurance marketplace.
“Deductibles are going up across the board,” says Fronstin. Some 27 percent of employees enrolled in company health plans have deductibles of at least $1,000. That’s a 22 percent increase over 2009, according to the Kaiser Family Foundation. High-deductible plans can pare down premiums — leaving more money for rent or car payments.
Ability to manage your own care costs. “This approach can save you money,” says Fronstin. For example, healthy adults who don’t use much health care may be overpaying in traditional insurance plans.
You’ll need to ask lots of questions though, especially about cheaper treatment options. You’ll also need to know your out-of-pocket expenses, which can quickly balloon with high-deductible plans.
On the plus side, satisfaction rates for people in these plans have climbed, says Fronstin.
“I’d rather have lower amounts taken out of my paycheck,” says Darling, “manage my own health care and use generic drugs.” Don’t go to emergency rooms if you can avoid it, she says — you can save a lot of money.
Getting socked with high deductibles. You’ll feel the pinch if you get sick and must pay for costs out of your own pocket. That means you must be a good money manager by putting aside, say, $200 per month via your health savings account.
And that’s not all. High-deductible plans may include high copayments, caps on hospitalization costs and other out-of-pocket costs. To compare plans, talk to your employer’s benefits specialist.
However, if your high-deductible plan ends up being an ill fit, consider changing to a more traditional health insurance plan. You can do it once per year. “If you’re not organized enough,” says Darling, “you’ll want something else you’ll pay more for.”
Forgoing crucial care. According to a report issued by the UCLA Center for Health Policy Research, individuals with high-deductible plans are less likely to visit an emergency room, and they also “delay necessary treatment or doctor visits.”
This worries Dugan. “The intent was that people would be savvy consumers and shop for a doctor like a mechanic,” she says. “But the medical system is nontransparent. In most states, you can’t find out what doctors or hospitals charge. And your life is not the same as an automobile.”
Dugan says that when you’re ill, your mental frame of mind isn’t suited to researching these complex medical costs.
The message: Patient, know thyself.