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High-deductible health insurance — worth the savings?

High-deductible health plans are among the many health care choices available to federal employees, but they are far less used than in the private sector.

Federal employees and retirees face a daunting choice each open season. Nationwide, there are more than 250 Federal Employees Health Benefits Program options available. While each fed has “only” two dozen options depending on where they live, a recent entrant — high-deductible health plans — is clearly joining an already long list.

These plans could revolutionize health insurance. But while corporate America is steering employees toward the cost-saving HDHPs — feds, with their wider range of traditional, low-deductible choices preserved, so far are only slowly beginning to follow suit. That represents a lost opportunity, since a major study by the RAND Corp. showed that families that opt for HDHPs actually save an average of 30 percent overall.

How do HDHPs work?

With HDHPs, the deductibles are higher, but the premiums are lower — so over time, the payoff can be big for participants who stay healthy. The gain for health insurers — and the nation as a whole— is that HDHPs help reduce the overall cost of health care services, because participants pay more out of pocket when they need significant services, and so seek cheaper providers. The theory is that consumer choice drives down prices and overall health care costs. And, according to the RAND study results, HDHPs already have saved Americans billions in health care costs.

Along with low premiums, HDHPs offer participants another key feature: health savings accounts. Each HDHP participant gets an HSA that is automatically funded monthly by their employer, with money that can be used if needed toward health care expenses. HSAs also permit participants to stash away their own pre-tax earnings to cover out-of-pocket health care expenses. But if no major medical need arises, that money can be saved in the HSA account under the participant’s own control.

Another feature of HDHPs is they often offer zero-deductible preventive care medical services, which encourages health maintenance and overall lower health care costs.

“The federal government offers numerous HDHP choices — and these plans are open and available to all federal employees,” Walton Francis, health insurance expert and editor of Consumers’ Checkbook’s guide to federal health plans, tells HealthyFed. “They all have considerably lower premiums than is available with other plans. They all offer substantial health savings accounts or health reimbursement arrangements.”

“These HDHP plans also tend to have very good websites offering information on how to shop around for medical services and steering you to lower-cost providers, so that tends to save more money,” Francis adds. “They’ve got a lot going for them, HDHPs — and it’s a shame that, so far, more federal employers aren’t enrolled in them.”

By the Office of Personnel Management’s definition, an HDHP means that enrollees carry an annual deductible of at least $1,200 for self only coverage and $2,400 for family coverage. Annual out-of-pocket expenses for health care — including deductibles and co-payments — cannot exceed $5,800 for self and $11,600 for families, according to OPM.

Conservative Clientele

“HDHPs are part of allowing employees more flexibility,” Brenda Morissette, a benefits advisor to employees at NIH since 2003, tells HealthyFed. “It allows participants to pay a lower premium — but of course they have to pay a higher deductible should the need arise for a lot of medical care.”

“An HDHP plan will pass some money into an employee’s HSA account, and then that employee has the option of also putting their own pre-tax money into the account to help pay for medical expenses,” Morissette explains. “Another great thing is that if you later leave the plan, you can take that HSA with you and use it later on medical costs — it remains your money.”

Francis noted the large savings a family can achieve. “The HDHPs represent a significant savings on premiums. There is no dispute over these premium numbers,” he said.

Francis pointed out to HealthyFed that with most of the HDHPs, a participant who does not make extensive use of health care services can save in the range of $1,000 to $2,000-plus per year on the premiums side. [Details are available at the OPM FEHBP website at www.opm.gov/insure/health.]

Of course, as Francis notes, certain HMOs’ premiums are also very competitive. But the HDHPs are conventional PPOs, too, with those advantages.

How much does the government deposit into an HSA? For a family, “an HDHP will typically put in from $1,500 to $2,100 per year,” Walton said.

And for convenience, it’s the same as your existing insurance. Even for managing the employee contribution to your HSA, “you go online to myPay, and make an election so it comes directly out of your pay,” Morisette pointed out.

Despite the plans’ many benefits and flexibility, Morisette says HDHPs don’t get that many takers. “We don’t have a lot of employees who opt for HDHPs. They tend to stick more with the traditional health plans.”

Morisette says she believes many are not thinking of the savings, but of perceived higher costs is they have a medical emergency.

“The fear is that if they have an expensive medical emergency, they’ll have to pay that large deductible — and most just aren’t willing to take that chance,” she says.

For example, the National Institutes of Health — a concentration of health-savvy employees — has over 15,000 employees enrolled in FEHBP programs. But only 227 NIH employees, about 1.5 percent of the total, are enrolled in an HDHP.

It’s not for lack of trying. NIH — like other agencies—puts the word out to employees about HDHPs year-round in new employee orientations, a benefits newsletter, seminars and special events surrounding its annual open season. In fact, despite all of their features, only approximately 2 percent of feds across the government have availed themselves of HDHPs, according to Francis. This is in stark contrast with estimates hovering around 20 percent in the private sector.

Morisette notes that the lack of takers is not just for HDHPs, but for all newer plans in general. Federal workers are, on average, a very financially conservative clientele — a sensibility that shows each open season. “People stick with the plan they already have … We don’t see a lot of people changing plans,” she says.

“Once they are in a certain plan, they often stay there forever,” Francis agrees.

Criticisms addressed

Critics of HDHPs have charged that because plan participants must pay from $1,200 to $2,000-plus of their health care costs, they can be discouraged from taking proactive steps to prevent illness, or worse, treat incipient symptoms. But Walton says experience—and that RAND study—has just not borne this out.

“I have two responses on this. First, the RAND study [last year] shows that HDHP participants do take care to get the health care they need. There’s a fear they won’t, but it turns out to be pretty groundless. The measurable effect of HDHPs on health status has been zero,” Francis said. “Second, these plans are a useful part of health savings, and virtually all of them are required to provide an annual physical.”

“So, you start with a free annual physical and your health savings account, which saves you money,” Walton continued. “If you get hit by a truck and survive, of course, you’ll burn through the deductible and pay a grand or two that some people wouldn’t otherwise pay. But you will get treated, same as with other plans.”

HDHPs must meet strict IRS criteria to be designated as a high deductible plan with an HSA. They are required to offer good catastrophic coverage. “That’s another plus for these plans,” Walton says, adding that an employee can only be out of pocket a fixed amount—around $5,000 a year, including prescription costs.

Finally, many in the health care world who confront the conservatism of enrollees cite research by Consumers’ Union — which publishes Consumers Reports — that many health care considerations people use to make decisions are not ideal, and can involve paying more for insurance simply to assuage concerns about below-average care.

Compare premiums and deductibles; consider health needs

As feds already know, insurance options vary based on where you live. At NIH, most employees live in the Maryland, Virginia or Washington, D.C., and can choose from 10 PPO plans, nine HMO plans and a handful of consumer-driven and HDHP options, including four HDHPs.

“Different people have different medical needs,” Morisette tells HealthyFed. “HDHP is just one more option that’s available. Use the comparison tools offered by your benefits people and by OPM’s web page to choose what’s best for you and your family members.” Complete information is available on www.opm.gov/insure/health.

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