IS your medical insurance bad for your health? If you have a high-deductible plan, the answer may be yes.
The investment firm Fidelity recently surveyed employees at various companies who had opted for a high-deductible health plan linked to a health savings account. About half of those workers said they or a family member had chosen not to seek medical care for minor ailments as many as four times in the last year to avoid paying the out-of-pocket expenses.
As any doctor will tell you, small health problems left untreated can become big problems, warns Kathleen Stoll, director of health policy at the health care advocacy group Families USA. “This is just one of the many high-deductible pitfalls consumers need to watch out for,” Ms. Stoll said.
High-deductible health plans are essentially insurance policies that charge lower monthly premiums than traditional plans because the consumer is responsible for paying the first $1,000 to $5,000 or more in medical bills before the insurance kicks in. The plans, sometimes called catastrophic insurance, are often used in conjunction with a health savings account.
With these accounts, earnings on savings are allowed to accumulate tax free and roll over year to year, as long as the money is ultimately used to pay for medical expenses. To qualify for one of these tax-sheltered savings accounts, an insurance plan must have a deductible of at least $2,300 for families and $1,150 for individuals.
A person can put up to $3,000 annually in these accounts, or $5,950 for a family.
People who can best take advantage of this tax break are those who can afford to contribute the maximum but do not spend it all on health care. The idea is that the money accumulates over the years, providing a cushion down the road when health problems or the need for long-term care arise.
To encourage employees to choose a high-deductible option, many employers put money into employees’ accounts or match part of the workers’ contributions. High deductibles, though, can pose problems for people who cannot afford the out-of-pocket costs associated with the plans. For a low-income family earning $25,000 a year, for example, the out-of-pocket costs of a high-deductible plan would eat up an estimated 15 percent of the annual household budget, according to a Kaiser Family Foundation report.
What’s more, low-income families don’t benefit from the tax breaks associated with health savings accounts the way middle- and high-income earners do.
Even if you can afford the costs, the loopholes that insurers often weave into these plans to reduce premiums can mean that even after your deductible is met, you may not have the coverage you need to handle a serious illness or accident.
“For most people, a high-deductible plan is basically a bet against yourself,” said Ms. Stoll. “You’re betting that you won’t get sick and you won’t have an accident. But isn’t that exactly what insurance is supposed to be? A bet that something might happen, and if it does you’ll be protected?”
Whether you are considering a high-deductible policy because you are healthy and don’t think you need much coverage or you want the tax-sheltered savings account or you simply cannot afford anything else, you need to carefully consider the following.
WHY IS THE PREMIUM SO LOW?
It is not always simply because the deductible is high. There may be other cost-reducing limitations on the plan as well. If the premium looks too good to be true, look for one of these lurking loopholes:
A cap on lifetime coverage. It is hard to even estimate what you will need over your lifetime in health care coverage. But when you are looking at this number, keep in mind that the average hospital charge for an appendectomy is $22,000, and the average charge for a hip replacement is $40,000. You do not want a lifetime coverage cap that is going to be exhausted quickly by one or two long hospital stays or by extended outpatient care for a chronic illness.
A cap on doctor visits. Some severely restrictive plans will cover only a handful of doctor visits a year after the deductible is met. Others charge a big co-payment for every doctor visit. Still others will not even start to cover doctors’ visits unless they occur after a hospitalization — which, as Gary Claxton, a vice president at the Kaiser Family Foundation, points out, is basically a hospital-only policy.
A cap on hospitalization costs. Again, consider those hospital costs. Is the policy you are considering going to get you through? Mr. Claxton has seen policies that so severely restrict hospitalization that they will not pay for the first day you are admitted. “That’s the day when you’re most likely to have the most costs,” he said. “Think of it: You’re admitted to the E.R., you have surgery and you spend the night in the I.C.U., and none of it is covered.”
Other high out-of-pocket costs. Just because you have met your deductible doesn’t mean you are done spending money. High co-payments of 20 percent or more on doctors’ visits, prescription drugs and hospitalizations can add up quickly. With some of these policies, Mr. Claxton says, you will pay an extraordinary amount in out-of-pocket costs, sometimes as much as $10,000.
Consumers need to read the policies carefully. “But it’s not easy to know what is adequate coverage and what isn’t,” Mr. Claxton said. “I’ve been in this business for years, and I still wouldn’t know what, say, a reasonable cap on physical therapy for a stroke victim would be, or what a cap on radiation services would mean for a cancer patient.”
If you use a Web site like ehealthinsurance.com, you can find out more about each price quoted by clicking on “plan details” and reading carefully, looking for the categories listed above. If you do not find the specifics you need, call the insurer’s customer service department and ask.
In addition to researching and comparing policies on the Internet and by phone, Ms. Stoll suggests enlisting the help of a well-recommended insurance broker or agent who specializes in high-deductible plans, to help you wade through the really fine print. If you are comparing plans offered by your employer, your benefits department will be able to answer questions and provide copies of the policies.
Your goal is to apply only for the policy you think you are most likely to get. The drawbacks to being turned down are too great to submit applications to many insurers, hoping for the best deal.
The prices you see on the Internet or hear quoted by an agent are not necessarily the premium you will pay. To get that number, the insurance company needs to know your age, weight and other personal details and look at your medical history — a process known as underwriting.
If you are turned down for a policy for any reason, that information can be shared among insurers and be used to deny you future coverage. The more policies you apply for, the more likely you are to be turned down by at least one of them, and the more likely you are to have the damaging information in your files. Avoiding this trap is good advice, says Ms. Stoll, whether you are applying for high-deductible or traditional health insurance.
IS THERE A SAVINGS PLAN?
High-deductible plans that can be linked to a health savings account must adhere to federal regulations that include limits on out-of-pocket costs and the amount of the deductible. It is usually clear on most insurance Web sites whether a plan is eligible for linking to a savings account. If you have any doubts, call the insurance company’s customer service department and ask.
Because people with high deductible plans are less likely to seek routine preventive treatment — risking costly problems later on — some insurers have included basics like an annual physical and certain preventive prescription drugs.
These plans often come with slightly higher premiums, though. So you will need to calculate whether the extra coverage is cheaper than what you would pay out of pocket for preventive care.
* By WALECIA KONRAD; May 30, 2009