Many Traditional Plans Are Currently Less Expensive Than HDHPs

Van Mayhall hosted this week’s Cavalcade of Risk, at his Insurance Regulatory Law blog.  Most of the regular contributors are included, along with a couple of new faces.  Jason Hull from Hull Financial Planning has an article all about high deductible health plans (HDHPs) and health savings accounts (HSAs) that is worth a read, especially if you’re used to having an employer pay for your health insurance and are now shopping for your own policy.  Jason’s perspective is that of a financial planner, so he’s understandably impressed with the HSA part of the equation.  We used to be just as impressed with HDHPs and HSAs, but – at least in Colorado – they have lost some of their appeal over the last few years because HDHPs aren’t as price competitive as they once were.  Our own family had an HDHP and HSA for several years, but we switched a couple years ago to a new Many Traditional Plans are less expensive than HSA qualified HDHPsplan that is not HSA-qualified (we’re still allowed to have our HSA, and we are able to withdraw money from it if we need to pay medical expenses.  But we can’t contribute any additional money to it unless we switch back to an HSA-qualified HDHP).  The reason we switched was the premium.  Our HSA-qualified plan was going up to $570/month, and the new plan we chose was $311/month (it’s now right around $400).  HSA-qualified plans have one joint deductible for the whole family, and expenses like prescriptions are rolled into that unified deductible.  That’s in contrast to the type of plan we have now, with a maximum out of pocket that allows for two family members to meet individual deductible and coinsurance limits (basically doubling the potential – although unlikely – out of pocket exposure).  Our current plan also follows the recent trend of incorporating a separate prescription deductible that must be met before prescriptions are covered with a traditional copay.  This type of plan has lesser benefits than an HDHP, and thus the premiums tend to be lower as well.

Several years ago, HDHPs were very popular among our clients in Colorado.  But over the last few years, they’ve become much less popular, mainly because there are so many less-expensive health insurance options on the market now.  HDHPs haven’t really changed in terms of design, but their premiums have climbed to reflect the rising cost of health care.  In order to provide more affordable options, health insurance carriers have designed new plans with increased out-of-pocket exposure and lower premiums.  Because HDHPs are relatively constrained by regulations regarding their structure, they haven’t been able to remain at the low end of the price scale in the health insurance market.  In fact, many HDHP plan designs are now on the more benefit-rich end of the spectrum.

If you have an option to choose an HDHP  or a traditional plan through your employer, the HDHP will probably be the less expensive choice, especially if the traditional option has a low deductible and very rich benefits.  In that case, the HDHP might be a great choice, providing a lower premium and the ability to set up an HSA and contribute pre-tax funds that can be used for healthcare or function similar to a traditional IRA in retirement.  But if you’re in the individual market and comparing policies, you’ll find a lot of plans that are less expensive than HDHPs right now.

This will probably all change next year though, and HDHPs might once again become a very attractive option.  If they can fit into the requirements for bronze coverage, they will likely be among the lower priced plans starting in 2014.  But for now, don’t assume that an HDHP will be the least expensive option for your family.  And if you’re setting up the HDHP just to be able to fund an HSA, make sure you’re not paying more for the coverage than you’ll get in tax breaks and estimated investment returns from the HSA.

About Louise Norris

Louise Norris has been writing about health insurance and healthcare reform since 2006. In addition to the Colorado Health Insurance Insider, she also writes for healthinsurance.org, medicareresources.org, Verywell, Spark by ADP, and Boost by ADP, and Gusto. Follow on twitter and facebook.

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