Why Are Health Insurance Deductibles So High

The American Healthcare System

High-Deductible Health Plans, Explained

According to the Journal of the American Medical Association, the life expectancy of an average American is 78.8 years, despite other wealthy countries having a range between 80.7 to 83.9 years. In addition, only 90% of Americans have health insurance. This may seem like a lot, but when compared to the fact that in other industrialized countries nearly 100% of citizens have health insurance, it seems that the United States is an outlier.

Why is this the case? Some argue that it is because the American healthcare system is notoriously complex and bureaucratic. For example, there are separate rules, funding restrictions, and out-of-pocket costs for all different types of insurance, including employer-based, private, and public health insurance plans such as Medicaid or Medicare. Most healthcare plans also do not cover life-saving pharmaceutical drugs.

Due to this complex system and a general lack of government regulation, medical providers are able to set their prices at whatever they want, oftentimes forcing Americans to pay high prices even if they do have health insurance.

How To Choose An Insurance Plan Thats Right For You

Consider the following when choosing a health plan:

If youre healthy and usually go to the doctor once a year, a lower monthly premium may be a good choice for you.
If a chronic health condition means that you go often to your primary care provider or specialists during the plan year, you must decide if savings from low premiums are greater than the cost of regular care or medication.

Carefully weighing the pros and cons of high-deductible health insurance may help you find the coverage thats right for you. In addition to saving you money, finding the right plan for you can help ensure that youll receive coverage for the health care you need, when you need it.

Doing The Math On Hdhps

While it can seem like a straightforward choice based on how often youre using the health care system, its worth doing some side-by-side comparisons. Even with a chronic condition, a high-deductible plan with a low monthly premium and a generous employer HSA contribution might end up being cheaper than a traditional plan with a higher monthly premium and no employer contribution.

Costs to compare from plan to plan include:

Premium: This is the amount of money youll pay each month for the plan.
Deductible: This is the amount youll pay before your health insurance starts to cover care, with the exception of qualifying preventive care in some cases. Make sure you note if theres a deductible per person and an overall deductible for the family.
Copays and coinsurance: These are payments you make for medical services after youve hit your deductible. Copays are a set amount of money you pay for a particular service, such as $20 each time you see a specialist. Coinsurance is a percentage of the approved service cost, such as 20% of the cost of an office visit.
Out-of-pocket maximum: This is the most you could spend on covered health care in a year. There may be a per-person max and an overall family max.
Employer contribution: If youre comparing a high-deductible health plan to another plan, make sure you include any contribution your employer makes toward your HSA, which you can use to pay for medical care.

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How Does Tax Policy Increase Health Care Costs

There is not a single answer, but health care economists assign much of the blame to the original sin of health care policy: the preferred tax treatment for employer-sponsored insurance premiums. If you buy a non-employer plan or pay for medical spending out of pocket, you typically use after-tax dollars. In contrast, if you buy health insurance through your employer, the premiums are paid with pretax dollars. The result is that there are significant tax incentives to choosing ESI plans with high premiums and low cost-sharing payments .

While this might seem like a technical tax issue, the consequences of health cares original sin are significant. High-premium plans mean people have little reason to consider the costs of their medical care. That leads people to make health care decisions where the costs of the procedures are far beyond the expected benefits. In the video below, economist Milton Friedman summarizes the consequences of this system:

Economist Dan Kessler highlights several harmful effects of the policy. First, it makes employers and employers less sensitive to increases in their ESI premiums. That is because a dollar increase in premiums doesnt reduce ones after-tax income by a full dollar. Kessler explains why this is such a big problem:

How Does A High

In general, your health plan starts paying for eligible medical expenses after youve met your deductible, meaning youve paid out-of-pocket up to the amount of the plans deductible. This applies to high deductible health plans, as well as traditional plans. The amount of your deductible depends on the plan you choose. If you choose a plan with a higher deductible, you may be required to pay more out-of-pocket in order to reach your deductible. There are some pros and cons to a high deductible health plan.

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What Does A Higher Deductible Health Plan Cost

Many factors contribute to the price of your HDHP premiums, such as state and federal laws, where you live, and the type of plans available, which are not within your control.

When choosing an insurance plan, its a good idea to think about your employees total potential healthcare costs, not just the premium. Considering this, you can start to see if selecting a higher deductible health plan would be the best bang for your buck.

Of course its impossible to predict the exact amount of total medical services your employees may need in a given year. But you can still consider healthcare cost averages, the diversity and general health affairs of your workforce, inflation prices, your health benefit budget, and other controlling factors before you pick the HDHP thats right for your business.

How Does A Health Insurance Deductible Work

A deductible is a set amount you may be required to pay out of pocket before your plan begins to pay for covered costs. Not every health plan has a deductible, and this amount may vary by plan. Every year, it starts over, and youll need to reach the deductible again for that year before your plan benefits start. Keep in mind that only what you pay for covered medical costs counts towards your plans deductible.

Your annual deductible can vary significantly from one health insurance plan to another. Plans with higher metal levels tend to have lower annual deductibles but higher monthly premiums. Plans with lower metal levels tend to have lower monthly premiums but higher annual deductibles. The 2019 average deductibles for individual plans dropped 6% from 2018, according to an eHealth study of the 2019 open enrollment.

Here are a couple important things to keep in mind:

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Is The Affordable Care Act Still In Effect For 2021

ACA Has Not Been Repealed or Replaced, & Lawsuit Doesnt Affect Enrollment in 2021 Plans. Despite the ever-present headlines about health care, the Affordable Care Act remains the law of the land. And as noted above, the American Rescue Plan has expanded the ACAs subsidies to make them larger and more widely available Apr 26, 2021.

Rising Health Insurance Deductibles Fuel Middle

High health insurance deductibles are causing financial hardship

Denise Wall, a Fresno-area schoolteacher with more than $2,000 in medical bills, was outraged to hear she could get free care if she quit her job and enrolled her family in Medicaid.

Brenda Bartlett, a factory worker in Nebraska, was so angry about $2,500 in medical bills she ran up using the coverage she got at work that she dropped insurance altogether.

They dont give a rats butt about people like me, she said.

Sue Andersen, burdened with nearly $10,000 in debt through her familys high-deductible plan, had to change jobs to find better coverage after learning she and her husband earned too much for government help in Minnesota.

We are super middle class, she said. How are we stuck with everything?

Health insurance never a standard protection in the U.S. as it is in other wealthy countries has long divided Americans, providing generous benefits to some and slim-to-no protections to others.

But a steep run-up in deductibles, which have more than tripled in the last decade, has worsened inequality, fueling anger and resentment and adding to the countrys unsettled politics, a Los Angeles Times analysis shows.

Many wealthy Americans already reaping most of the benefits of the last decades economic growth have weathered the dramatic increase in deductibles in recent years in part by putting away money in tax-free Health Savings Accounts.

These people may have health insurance but they cant pay the bills.

Disadvantages Of An Hdhp

The main drawback to choosing an HDHP is having potentially high out-of-pocket expenses when you receive covered services during the year. You pay more in upfront costs for nonpreventive care until you meet your yearly out-of-pocket maximum. For example, lets say a routine doctor visit thats covered by your HDHP leads to a diagnosis of a medical condition that needs expensive treatment. Youll be responsible for the cost of that care up to your deductible, plus copay and/or coinsurance fees up to your out-of-pocket maximum. So, if you have a chronic condition and need to visit doctors often, an HDHP may not be the best option for you.

Another possible downside to HDHPs is that you may find yourself putting off doctor visits because youre not used to having such high out-of-pocket costs when you use covered services. A 2019 survey found that about half of U.S. adults say they or a family member put off or skipped some sort of health care or dental care in the past year because of the cost.1 Avoiding doctor visits and prescriptions could lead to more serious health problems and larger medical bills down the road.

Cons

Higher out-of-pocket costs when you receive covered services

You pay for all your nonpreventive health care until you reach the high deductible

I Know This Is A Gamble

One reason for the rise in these plans: Employers are shifting the burden of higher health care expenses to their employees. Workers with employer-based insurance typically are paying 12% of their incomes — or more than $7,200 annually — on premiums and deductibles, up from 7.8% a decade ago, the Commonwealth Fund found in a .

To be sure, workers sometimes pick the higher-deductible plan because they want to lower their monthly premiums. Some wealthier workers pick high deductible plans because the lower premiums allow them to sock away money into their HSAs, which allows them to save for future health expenses as long as they remain reasonably healthy and their HSA investment options grow over time. Because contributions to HSAs are tax-deductible, and gains on HSA investments are tax-free, and the money can be used tax-free if spent on medical costs, these plans can help with financial planning into retirement. But only 1 of 10 workers with a high-deductible plan has saved more than $5,000 in an HSA, Kaiser found.

These trends are alarming to health care experts. Dr. Michael Munger, a family physician in Kansas and the board chair of the American Academy of Family Physicians, said he sympathizes with patients who are struggling financially, but he worries about the risks they’re taking on.

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High Deductible Health Plan

A plan with a higher deductible than a traditional insurance plan. The monthly premium is usually lower, but you pay more health care costs yourself before the insurance company starts to pay its share . A high deductible plan can be combined with a health savings account , allowing you to pay for certain medical expenses with money free from federal taxes.

For 2022, the IRS defines a high deductible health plan as any plan with a deductible of at least $1,400 for an individual or $2,800 for a family. An HDHPâs total yearly out-of-pocket expenses canât be more than $7,050 for an individual or $14,100 for a family.

How Do Medicaid And Medicare Contribute To High Costs

Government policies contribute to high health costs in other ways too. In the case of Medicare and Medicaid, the government reimburses doctors and hospitals at rates far below what private insurers pay. Thats a good deal for the government, but the result is that hospitals and providers end up charging private insurers and patients more to make up the difference. John Cochrane summarizes this arrangement:

The government wants to subsidize health care for poor people, chronically sick people, and people who have money but choose to spend less of it on health care than officials find sufficient. These are worthy goals, easily achieved in a completely free-market system by raising taxes and then subsidizing health care or insurance, at market prices, for people the government wishes to help. But lawmakers do not want to be seen taxing and spending, so they hide transfers in cross-subsidies. They require emergency rooms to treat everyone who comes along, and then hospitals must overcharge everybody else. Medicare and Medicaid do not pay the full amount their services cost. Hospitals then overcharge private insurance and the few remaining cash customers.

In the video below, Cochrane explains what is needed to keep this complex system of cross-subsidies in place namely, the government must limit competition so providers and hospitals can overcharge private insurers and patients without worrying about new entrants.

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Question: Why Are Health Insurance Premiums So High

Is healthcare a privilege or a right?

Americans spend a huge amount on healthcare every year, and the cost keeps rising. In part, this increase is due to government policy and the inception of national programs like Medicare and Medicaid. There are also short-term factors, such as the 2020 financial crisis, that push up the cost of health insurance.

High Deductible Plans And Health Savings Accounts

Another option to consider are high-deductible plans, which usually have low monthly premiums. These plans may appeal to you if youre generally healthy, dont anticipate getting sick, and dont visit the doctor often or take many prescription drugs.

While low premiums may seem initially appealing, its important to consider the amount of health care services you may need in the upcoming year both for yourself and any dependents you may have. If you do opt for a high-deductible plan, you may be eligible for a Health Savings Account . An HSA allows both you and your employers to deposit a limited amount of pre-tax dollars into this account for medical expenses. These plans usually have a high deductible amount you must meet before benefits kick in.

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Being Young And Healthy Helps

If there’s a place for high-deductible plans, it’s most likely with the young and healthy, experts said. But high-deductible plans are as common with workers between 45 to 64 as they are with Americans under 29, the CDC found. “Someone who just needs the catastrophic coverage, someone who needs it once a year, for that subset of individuals, a plan like this could certainly work,” Dr. Munger said.

He said his physicians group is urging passage of the Primary Care Patient Protection Act, a bill that would require high-deductible health plans to include a set of primary care visits each year, without cost or co-pays for the consumer. “If we can at least encourage individuals not to let their health go,” said Dr. Munger, “that would be a huge hit.”

Why Choose A High

High-Deductible Plans ‘Quiet Revolution in Health Insurance’

Most people who choose a high-deductible plan do so because it will lower their monthly premium. Also, customers with a high-deductible plan are eligible for a Health Savings Account . An HSA allows you and your employer to deposit a limited amount of pre-tax dollars for medical expenses.

High-deductible health insurance policies make sense for individuals who are generally healthy and who do not anticipate getting hurt. Hint: a high-deductible plan may not be the best choice for a racecar driver or professional wrestler.

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Why Has Health Insurance Become So Expensive

Should I Have A High Or Low Deductible

As mentioned, the health insurance deductible may vary from plan to plan. Its important to take your time to compare plans side by side, since higher plan deductible may be offset by lower cost sharing or premiums, and vice versa. Some plans may not have a deductible at all. These plans are referred to as zero-deductible plans. Zero-deductible plans typically come with higher premiums while high-deductible plans typically come with lower premiums.

If you frequently visit doctors or take multiple medications, a zero-deductible plan may suit your budget and coverage needs. If, on the other hand, youre generally healthy and dont use medical services often, you may find youre unlikely to reach your plans deductible every year. In that case, it may make more sense to find a plan with a higher deductible if its offset by lower monthly premiums. You may find you end up paying less overall this way.

eHealth offers a wide range of individual and family health insurance plans for a variety of budgets and needs. Our plan finder tool makes it easy to browse and compare plan options. Remember, health insurance costs are regulated, so youll never pay more at eHealth than you would elsewhere.

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