What a weird question. With today’s super-high deductibles and astronomical out-of-pocket limits, many people with health insurance struggle to pay their medical bills despite being “insured”. As we point out in a recent blog post, the maximum deductible and out-of-pocket limit for HSA-qualified plans is increasing to $7,500 for an individual and $15,000 for a family in 2023, and for non-HSA plans, the max OOP is increasing to $9,100 for single coverage and $18,200 for family coverage.
So, if it’s such a crazy question, why are we asking it? The reason is because premiums are also through the roof, and if we want to keep our clients insured, we need to find a way to lower the amount they pay to the insurance company each month. That requires us to take a hard look at what they’re paying for.
While it is true that many of today’s plan designs leave consumers with a lot of cost-sharing, many plans offer up-front coverage for lower-cost services or access to network providers that consumers simply don’t need.
You’ve heard the analogies before. People buy auto insurance in case they get in a wreck or their car gets stolen, not to pay for new tires or an oil change. People buy homeowner’s insurance in case their house is robbed or catches on fire, not to help pay for lawn maintenance or routine upkeep. Having maintenance items covered under an auto or home insurance policy would increase the premium significantly; it’s far less expensive to simply budget for those items.
When it comes to health insurance, though, many brokers sell FULL coverage policies to their clients—plans that cover big, unexpected hospital bills but also lower-cost doctor visits and prescriptions. As explained in a December, 1958 article by Charles Siegfried published in the American Journal of Public Health, “No one by having small bills paid under such a plan would be helped sufficiently to make the additional costs of paying such small bills in this way attractive.”
It’s a lesson we seem to have forgotten in the 63 years since the article was published. Today, consumers pay for plans that cover doctor visits and prescriptions for a predictable, flat-dollar copayment, but they might be overpaying. HSA-qualified plans, which require the member to pay the contracted amount for these services until the calendar-year deductible is satisfied, are less expensive than copay plans, come with the added benefit of having a lower out-of-pocket exposure in many cases, and allow the consumer to pay for eligible medical expenses with tax-free dollars.
If we do the math, we will find that our clients will often be better off with a less comprehensive plan. In other words, they might currently be over-insured. This is especially true for healthier consumers who only go to the doctor once or twice a year or who use their telehealth benefit before scheduling an in-person appointment. It is often a better strategy and more cost-effective to select a lower premium ACA plan, and supplement it with low deductible ancillary plans like accident or fixed indemnity coverage.
Additionally, healthier clients who don’t have need for frequent medical care, those who are primarily purchasing health coverage in case something unexpected happens, probably do not have specific medical providers that they want to keep. And that means that they might be overpaying if they have a PPO plan. It varies by location and by carrier, but switching from a PPO to an HMO plan can often save consumers 20 to 30 percent.
Insurance Newsnet addresses overpaying for health benefits in a recent article. They start off with the hard-to-believe claim that “More than 60% of American employees are overinsuring their health,” which seems counterintuitive since we so often hear that “a large number of people are underinsured, not vice versa.” But, as the article points out, “when employees are presented with the health insurance options their employers offer, most will choose the ‘wrong’ plan, and pay more in premiums than they should for coverage they don’t really need.” The same, of course, is true for individual clients.
The article goes on to point out a fact that brokers should take to heart: “Although low deductibles or ‘first dollar’ coverage sound great, if that coverage is unaffordable there is no benefit to be had.” When visiting with clients, it’s important to ask a lot of questions, and that includes questions about their ability to pay their monthly premium.
Remember that the main reason to purchase insurance is to protect ourselves from, big, rare, unexpected, and potentially catastrophic losses, not to pay for the little stuff. Taking away some of the up-front benefits and moving to a smaller provider network could still provide that catastrophic protection consumers need while lowering the premium enough to make the coverage affordable. The alternative—simply going without health insurance—is something nobody wants.