HDHPs are so hot right now: What you need to know



Myles Ma

Myles Ma

Senior Managing Editor

Myles Ma is a health care expert & personal finance writer for Policygenius. He edits the Easy Money newsletter.

Published November 19, 2017|5 min read

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If you have private health insurance, the chances are good you're enrolled in a high-deductible health plan (HDHP). Through the first half of 2017, the share of people with private insurance who were enrolled in a HDHP reached 42.9%. That share has nearly doubled since 2010, when 25.3% of people with private health insurance had HDHPs, according to survey data from the National Center for Health Statistics.

HDHPs are seemingly taking over private health insurance. If you have one, you probably like paying lower premiums than you would with a traditional plan. However, you'll also pay more out of pocket before you meet your deductible, hence the name.

People with HDHPs need to think about health care quite differently from people with traditional insurance plans, said Nir Menachemi, chair of the department of health policy and management at Indiana University. Traditional health plans have co-pays intended to discourage people from getting unnecessary, costly medical care. HDHPs go even further.

'Shopping' with HDHPs

HDHPs aim to make people treat health care spending as if it's coming out of their own pockets, using the novel technique of making them pay for a lot of it out of their own pockets.

The IRS actually has a specific definition of what constitutes a HDHP. It's a health plan with a deductible of at least $1,350 for an individual or $2,700 for a family. Until you spend the deductible, the insurance company won't share any costs with you. Above that, they'll start sharing the load until you hit your out-of-pocket max for the year. The IRS has guidelines for this as well: $6,650 for yourself and $13,300 for a family. (These guidelines have been updated for 2018.)

"Cost-consciousness suddenly becomes something someone on a high-deductible health plan needs to start thinking about," Menachemi said.

The idea, said Amelia M. Haviland, an associate professor of statistics and health policy at Carnegie Mellon University, is that people with HDHPs shop for medical services like they would for clothes. The problem is health consumers rarely have information on the value of the services they're "shopping" for or the price.

I asked Haviland if the situation was like going to a mechanic when you know nothing about cars, but it's even worse. Like a mechanic, you have to trust the doctor to tell you whether the services they propose are actually valuable, but you and the mechanic usually know what it will cost. Very often, a doctor has no idea how much a patient will pay, since prices are negotiated with the insurer.

I've experienced this uncertainty firsthand. I had an HDHP at an old job and I went to the emergency room for what turned out to be the flu (I'm a wimp, whatever). I knew it would be expensive, but I had no idea exactly what I'd pay until a few weeks later when the hospital finally billed me, well after I'd recovered (I paid it using my health savings account — more on those later).

It has proven difficult to convince insurers, employers and providers to offer more price transparency, Haviland said.

"Patients don't have the power to make that change," she said. "Employers have not taken it up. Insurance companies have not shifted their business model."

HDHPs: Here to stay

More health care consumers will have to familiarize themselves with HDHPs. Employers like them because they shift costs onto workers and off the bottom line, Haviland said. If the trend continues, they will comprise more than half of all private health insurance plans in a few years.

"I would expect it to continue, absolutely," Haviland said.

HDHPs didn't come out of nowhere. Like the Affordable Care Act (ACA), they were part of a reaction by policymakers, insurers and health providers to some ugly numbers: The U.S. spends more per capital on health care than any other place on earth, but lags behind on health measures like infant mortality and life expectancy. While measures like the ACA are meant to improve the quality of health care by bringing it to more people, HDHPs address the other half of the equation: lowering health care spending.

In that sense they've been successful. HDHPs tend to lower how much health care people use, almost to a fault. Menachemi recently helped author a paper that said people with HDHPs avoid medical care, including things like annual physicals and immunizations, even though many HDHPs don't require you to meet the deductible for preventative services. Some of these services may help patients address chronic conditions like diabetes, and skipping them might actually increase costs long-term if those conditions get worse.

How to master an HDHP

So how can you take advantage of an HDHP? For one, use your health savings account if your plan offers one. About 41% of HDHPs do, according to the National Center for Health Statistics Data. These tax-exempt accounts are used to pay or reimburse you for medical expenses. You can claim a tax deduction for contributions you make to your HSA and if your employer chips in, the money doesn't count as taxable income. You also get to keep what you don't spend and earn interest on the balance.

While it may be difficult, Haviland said patients need to push for price information as much as possible. When signing up for an HDHP, make note of two numbers: The deductible and the out-of-pocket max. You never know when a health emergency will force you to meet the deductible right away, she said.

"If you're going to enroll in one of these plans, you shouldn't do it if you can't come up with the entire deductible pretty easily, because it could happen any time," Haviland said.

The out-of-pocket max is important if you or someone in your family has high health costs. You need to figure out how you'll have enough money to meet that max each year.

You also need to stay on top of bills. Haviland said research has shown that about 25% of bills from health insurance companies contain errors, so you need to figure out how to contest those errors.

It's also important to know what services you can get without paying a deductible. Don't avoid preventive care if your plan covers it. A regular checkup can let you know whether you're at risk for a potentially costly chronic illness and help you get back on a healthy track. HDHPs place more cost and responsibility on you as a health care consumer, so make sure you're on top of where your money is going.

Image: FatCamera