I hate health insurance. So for me to have the responsibility of managing our company's health insurance plan doesn't have me jumping for joy. However, there was some good to come from the experience of having to choose the right plan for our company and managing that plan. It is the tremendous amount of knowledge I gained about the industry and its offerings.
Most larger companies these days offer what's called a Health Maintenance Organization (HMO) health plan. These plans, as most people are aware, give you “cheaper” out of pocket expenses when visiting the doctor. The trade off is that you have a pretty small network of doctors you can go see and to leave that network means that you as an employee could be paying a hefty sum of money out of your own pocket. When I talk to people about the type of insurance coverage we offer they often balk at first. After all, when I tell them that there's a $1500 deductible per year before the insurance even kicks in and they're used to paying a $25 or $50 copay for a visit to the doctor, it sounds like a huge expense. Make no mistake, health insurance is expensive no matter which plan you take, but if we look at how the insurance company gets their money with regard to these 2 types of plans we can see how a shift in thinking could offer up some pretty awesome opportunities for Employees.
Because there are about as many variations on these plans as there are number of people on the earth, I'll make a couple of assumptions. First, the plan is going to pay some percentage of your costs once your deductible or copay is met, so we'll assume this to be 100%. Your plan may vary. Second, we'll also assume that drugs are covered under your plan in some fashion. On to the comparison!
We'll start with the obvious comparison right off the bat. Why would I want to have a $1500 deductible, when I could pay $25 per visit to the doctor. Think about how often you go to the doctor. Is it a few times a year for some cold/flu thing? Is it more often because you have a recurring illness that needs maintaining? In either case you're spending $25 each and every time you go. With those illnesses you are usually prescribed something. You then have a copay on drugs as well. All of sudden those $25 are starting to add up. But they still don't add up to $1500 you say. Well a couple of trips where you pay for it out of your pocket doesn't add up to $1500 either. It's going to be more, there's no mistaking that, but we probably haven't spent $1500 yet. But the reality of it is, if you go more often or have a health problem of some kind, the $25 adds up and there's no end to the number of times you can pay it.
Now we'll shift gears and talk about premiums. If you don't administer the program you probably have no idea how much your premium really is. Your company probably just says that you get to help contribute some dollar value out of your paycheck every month to it and that's that. I'm here to tell you that the premium is significantly higher for an HMO than it is for a HDHSA. It could be on the order of 2-3 times the cost. So you may only be paying $25/visit, but you're probably also paying $100 or maybe $200 per month toward your premium. If you're fairly young that's already more than you'd be paying if you paid the whole premium of an HDHSA. Couple that with the fact that your employer is probably kicking in for that premium as well and all of a sudden the dollars start adding up in a hurry.
I'm guessing most people still aren't convinced because they aren't paying for all that out of their own pocket, so we'll talk about the final aspect of this. The HDHSA has a savings account (HSA) that you contribute to with pre-tax dollars to help pay for your deductible. Some will argue that they can do that with a Flexible Spending Account (FSA) and they are correct. But the big difference here is that any dollars an employee contributes to an FSA go away at the end of the year, where the HSA dollars continue on in your account forever. So if you have a year where you're healthy and you don't ever go to the doctor you just store that money up until you're ready to use it. Plus it's a savings account, so it earns interest for you.
The final argument employees have against the HDHSA plan is that if they go to the doctor a lot at the beginning of the year, then they have to come up with $1500 all at once. While that is true, most if not all hospitals and clinics will help set up a payment plan to get the payment from you over the course of a longer time frame. Because they've already rendered the service and they have no way to reclaim any property or collateral its in their best interest to get their money any way they can. And of course they realize that most people don't have thousands of dollars laying around.
So in the end what we have is more dollars spent up front for the HMO in the premium, less flexibility because of the doctor network you're required to use and no matter how many times you go to the doctor you're paying the copay. With the HDHSA, your premium is cheaper you get a preferred provider network, but you could go to any doctor you wanted, and once you hit the deductible, you don't pay another cent, regardless of how many times you go to the doctor. And of course if you never go to the doctor you just keep that money forever.
As an administrator I should also mention that our situation is somewhat unique in that we have our employees scattered throughout the entire United States. This means an HMO wouldn't work for us because the networks are very regional. As a small business with employees everywhere the HDHSA makes a lot of sense, but it could also make a lot of sense for other companies. The big hurdle is changing the mind set of their employees and in some cases the plan administrators themselves.
