How To Take Advantage of Lower Cost High Deductible Health Plans

Now that we have some experience with the ACA (Affordable Care Act), it has become apparent that the health plans that are truly the more “affordable” health plans are those with high deductibles. We actually like these high deductible health plans because they have a much lower cost. But, the dilemma for both the employer and the employee is how to deal with the fact that the employee is responsible to pay for those covered medical expenses that are subject to the high deductible. In many of these health plans, all medical expenses are subject to the deductible with the exception of those medical expenses that are part of a Routine Annual Physical... these expenses are “No Cost.” But the remaining medical expenses, sometimes including prescription drugs, are subject to the medical deductible and that can add up to be thousands of dollars.

So how do we deal that that?

There are 4 strategies available for employers and employees in dealing with these types of health plans. We believe that having a HDHP (High Deductible Health Plan) is a good thing, but it should be “paired” with one of the following strategies to help mitigate the potential high out of pocket expenses to the employee.

Pairing one of these strategies to a Bronze or Silver plan can “transform” that plan to something more like a Gold or Platinum plan at a much lower cost than purchasing that Gold or Platinum plan from the insurance carrier. Keep in mind that the lower cost of these HDHP’s vs. the more “traditional” health plans creates the money to help “fund” or pay for the strategies below.

Strategy #1 - Our Favorite! The HRA (Health Reimbursement Arrangement)

A Health Reimbursement Arrangement (HRA) is a tax-advantaged account to which employers make funds available to help their employees cover the health care costs that are subject to the health plan deductible. Contributions are not taxed to the employee and employees can use their HRA to pay for any qualified medical expense for themselves or their dependents as defined in the plan. Funds are typically accessed by use of a “smart” debit card.

The beauty of this strategy is that you can offer all of your employees a Platinum-metal level of coverage for the price of a Silver-metal health plan. In other words, you don’t have to purchase an expensive Platinum plan in order to provide a Platinum level of benefits... this is a strategy you should seriously consider. We have been recommending this strategy to our group clients for years and every- one loves it because everyone wins.....the employer and the employee.

HRA Example:

To illustrate how this would work, imagine a company with ten employees and an annual premium of $100,000 on a Platinum plan. In setting up the HRA strategy, they purchase a lower-cost Bronze plan for $60,000 annual premium reducing the premium by $40,000. Each employee has an upfront deductible of $2,500 on the new plan and the employer has agreed to reimburse each employee the whole deductible if they have any claims. At this point, the employer has saved $40,000 in premium and has agreed to fund up to $25,000 (10 x $2,500) in healthcare expenses for their 10 employees. Their worst-case scenario is saving at least 15% over their current Platinum plan. Our experience tells that what usually happens is that 1/3 of the employees will max out what you provide for them, 1/3 of the employees will hardly use the HRA funds at all, and 1/3 will fall somewhere in the middle……meaning that the employees, as a group, will only use about 50% ($12,500) of what is made available to them. So, in this example, the employer only uses about $12,500 of the $40,000 he saved by utilizing this strategy. This means the savings is more like 27.5%!!

Here is an excellent video that explains how a HRA works:

Strategy #2 - The HSA (Health Savings Account)

A Health Savings Account (HSA) can be an integral part of your high deductible health plan strategy. The idea is simple. After enrolling in a qualified High Deductible Health Plan (HDHP) and opening an HSA, members can use accumulated tax-free contributions to pay for health care costs for themselves and their dependents - including doctor and hospital visits, copayments, eyeglasses, prescriptions, certain long-term care insurance premiums and COBRA premiums.

Both you and your employees can contribute to an HSA (neither is required to) up to an annual limit specified by the IRS, but your employees retain control of their account and are able to rollover any funds remaining at the end of the year. From day one, the funds belong to the employee and can be used at any time in the future.

Here’s one you may not know about that has become very popular...

Strategy #3 - Secondary Insurance (aka GAP insurance or Medical Bridge))

Simply put, by purchasing a Secondary Insurance plan, sometimes referred to as a GAP plan, and pairing it with a High Deductible Health Plan, employers may be able to be very creative in raising deductibles and out of pocket maximums to produce a lower overall cost while retaining a high quality health insurance plan. Secondary Insurance plans cover most eligible expenses in relation to deductible and coinsurance for the underlying major medical plan.

Secondary Insurance plans are designed to help save premiums costs by allowing employers greater freedom in selecting lower cost high deductible plans and plans with higher out of pocket maximums, such as those found under the ACA (Affordable Care Act). The Secondary Insurance plan can be paid for by either the employer, the employee, or both.

Strategy #4 - Leave it Alone

In some instances, for example, where the employer is paying most of the cost of the employee’s health insurance, it’s okay to just have a high deductible health plan and have the employees pay for those medical expenses that are covered by the health plan but subject to the deductible. With this approach, the employer may want to set up a FSA (Flexible Spending Account ) so that the employees can pay for these medical expenses with pre-tax dollars.

The Spectrum Insurance Group is here to help you understand your options and to help you make the best decision for your company, your employees, and your budget.