Some Things You Should Know
The following addresses the emerging trend of Consumer Directed Health Plans (“CDHP’s”). The purpose of the article is to provide you with a basic understanding of what they are, what impact they will have on you, the health care consumer, and, how you can better prepare yourself for their entry into our market place.
Also known as “Consumer Driven” or “Consumer-Choice” health plans, these are insurance products associated with higher out of pocket expenses made by you, the consumer, which usually comes in the form of a high deductible (i.e. - $1,050 individual, $2,100 family for calendar year 2006).
Consumer Directed Health Plans “CDHP’s” = High Deductible Health Plans “HDHP’s”
We feel these terms are misleading, because, in reality, this trend is not driven by consumers, but instead by employers and health plans looking to reduce their health care costs. Therefore, we will be referring to these insurance products as High Deductible Health Plans “HDHP’s” throughout the rest of this document.
1. What are High Deductible Health Plans (“HDHP’s”)?
High Deductible Health Plans “HDHP’s” are insurance products (primarily PPO, but also HMO) that combine spending accounts funded by either the employer, employee, or, both, with a high deductible insurance policy (i.e. – minimum deductible requirement of $1,050 for individual, $2,100 for family). These spending accounts are designed to fund health care expenditures of the consumer, until his or her annual deductible is met.
2. How do HDHP’s work?
The health care spending accounts are funded at least in part by the employer, and dollars are set aside every pay period, in order to cover health care costs that are the financial responsibility of the employee, or, consumer. Ideally, the spending account should have enough dollars set aside to cover health care expenses until the employee’s annual deductible is met, at which point, the insurance coverage kicks in.
3. Why would my employer want to offer a HDHP’s over other types of health care coverage?
Cost Savings. HDHP’s are designed to reduce employer health care costs, which have dramatically increased in recent years. By shifting more financial responsibility to the employee, or consumer of health care, the employer is able to lower its premiums for health insurance, or, “buy down” its insurance premium. This is known as “Cost Sharing” or “Cost Shifting”, that is, shifting a large portion of the cost of health care from the payer to the consumer (e.g. – high patient deductibles and coinsurances).
4. How can I recognize HDHP’s versus other types of insurance coverage when I am selecting health care coverage during my company’s next open enrollment?
The following features distinguish HDHP’s from other types of health care coverage:
I. Higher patient financial responsibility (i.e. – high patient deductible, typically greater than $1,050 per individual and $2,100 per Family, which may be combined with an annual spending or savings account.);
II. Annual spending or savings accounts
A. Flexible Spending Accounts (FSAs)
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Pre tax contribution made by the employer that employees may use, in order to pay for qualified medical expenses.
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Unspent funds cannot be carried forward into future years, “Use it or lose it.”
B. Health Reimbursement Arrangements (HRA’s)
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May be used by any employer.
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Health care spending account funded by the employer, where funds may be used to pay for qualified medical expenses, not covered by the patient’s insurance.
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Eligible fund balances may rollover from year to year
(Note: This is a key difference from FSA’s).
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Generally owned by employer, and, cannot be taken with employee when they leave company.
C. Health Savings Accounts (HSA’s)
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May be used by any taxpayer.
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Must be opened before age 65.
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Requires a companion high deductible insurance policy (i.e. – a deductible of at least $1,050 for individuals and, $2,100 for a family).
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May be funded by employer or by employee.
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Eligible fund balances may rollover from year to year.
5. How will I know whether a High Deductible Health Plan is right for me?
The following is based on an article appearing in the Washington Post in October, 2005, entitled High Deductible High Risk, and, provides some tips on what to look for, when considering coverage under a HDHP:
Understand Your Costs
High-deductible plans force people to pay more out-of-pocket when they get sick, compared with lower-deductible plans.
You need to weigh very carefully the pros and cons of low insurance premiums versus high out of pocket expenses for your medical needs.
"In some ways, it is roulette," notes Karen Davis, a health care economist who is president of the Commonwealth Fund, a nonprofit focused on health issues. "If you're healthy and don't get sick, you'll pay less" than for comprehensive coverage, she says, but if you get sick, you could incur far greater costs.”
"It can all nickel-and-dime you to death," says Rebecca Thomas, adding that both she and her son have halved their asthma prescription regimen to make the drugs last longer. The family has paid out much more than they expected, but the policy will cover their preexisting conditions next year, so they are sticking with it, hoping they won't spend as much in 2006.
Beware Cut-Rate Plans
Watch out for low premium policies that feature $1,000 deductibles and little or no drug coverage, which can be riddled with out-of-pocket cost obligations.
According to Karen Pollitz, project director at Georgetown University’s Health Policy Institute, "Leaving the back door open is what will bankrupt you" if you get sick, she warns. Instead, consider a policy with a very high deductible, say $5,000, but one that clearly picks up 100 percent of all costs after the deductible is met. Just make sure you can afford the $5,000, she advises.
Read the Fine Print
The devil really is in the details, with respect to HDHP’s, so, go through your insurance policy in detail, paying close attention to the following:
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What counts and what doesn't count toward the deductible;
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fully covered preventive benefits that are not subject to the annual deductible, such as well child and annual adult exams, or, cancer screenings.
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Is your doctor included in the health plan’s contracted network?
Does the health plan allow you to access its negotiated rates, for medical expenses subject to the deductible.
What are the consequences of going “out of network” to a non contracted provider, what is covered in such cases what will you be expected to pay. Also, what portion of your “Out of Network” expenses can be applied to your annual deductible.
Remember, High Deductible Health Plans Impact Your Doctor as Well as You
Traditionally, doctors get all or most of their fees from insurers, with nominal co-payments upfront from patients. But under high-deductible plans, it's often not clear at the time of an office visit how much the patient will pay for that encounter. And that can wreak havoc on doctors' accounts receivable.
We recommend that you consult your doctors if you're considering a high-deductible plan.
Expect Paperwork Hassles
With a high-deductible policy, expect to get provider's bills, explanation-of-benefit forms and a blizzard of other paperwork, all of which you'll be responsible for directly.
And if you open a tax-advantaged savings account -- these are often offered with high-deductible policies -- be sure to save your receipts and cultivate your record-keeping skills. Depending on the account, you may have employer contributions mingling with your own contributions. "The bookkeeping can be pretty complicated throughout the claims payment process," says Karen Pollitz, project director at Georgetown University’s Health Policy Institute.
By comparison, managed care plan enrollees usually don't see provider bills, and only pay co-payments and premiums, typically deducted straight from their paychecks. "You are on your own [with] high-deductible health plans," notes Pollitz.
Source - High Deductible High Risk: Washington Post - October 5, 2005
6. It sounds like the patient bears a much greater financial responsibility in a High Deductible Health Plan, compared to a traditional HMO or PPO, is this true?
Yes, that is absolutely true. Here is a check list, which will help you prepare for what your additional Patient Responsibilities will be.
Patient Responsibilities Check List:
Use the following as a checklist, once you have made the necessary preparations.
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1. Plan to pay the doctor for any appointment at the time of service making sure you have enough money on hand to cover your costs.
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2. Call ahead to see if the doctor accepts a check (many don't) or credit card. Most Doctors prefer cash.
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3. Know how much you have paid toward your annual deductible $____ (deductibles will vary depending on which insurance plan you choose).
This will impact how much your doctor visit will cost you.
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4. Be prepared to respond to the inquiries you get in the mail immediately. (Know your insurance policy inside and out, and where to direct your health care providers if they are billing you unnecessarily).
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5. Know whether you have sufficient income or savings to pay for any additional services your doctor requests, such as lab, x-ray including MRIs, CTs, Mammo's, etc. (especially if you have not met your deductible).
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6. If you have an HSA or other kind of medical savings account, know whether the account is sufficiently funded to pay for some of the medical expenses listed above.
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7. If you go to the hospital, call its financial counseling department prior to the procedure to understand your payment responsibilities.
Most hospitals will collect the payment at the time of admission, or, if that’s not possible, many hospitals are willing to work out some type of payment plan, where you pay in monthly instalments.
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8. In the unfortunate event you go to the hospital through the ER, ideally you should be prepared to respond to many of the above questions…if that’s not possible, in order for the hospital to be able to verify your benefits, always make sure that you have on hand:
a. current member identification card issued by your health plan
b. as well as a picture identification (i.e. – Driver’s license, passport, etc.)
7. Where can I find out more about HDHP’s?
The following is a list of available resources with additional information on HDHP’s:
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