Are Low Deductible Health Insurance Plans Really the Best Plan?

It seems like right now so many folks are paying attention to their actual health insurance for the first time! Turns out, when people are dying in a pandemic, we will finally pay attention to what kind of health insurance we have from our employer.

There are basically a few kinds of plans that most folks have in the U.S.:

– Low deductible plan – you pay more upfront, but if you get sick you pay very little in terms of bills overall.

– High deductible plan – you pay less out of your check on a weekly basis, but when you get sick you will end up paying a much larger portion of the bill.

– HSA plan – this plan is less used because it’s confusing but basically it’s a combination of you paying a portion to a savings account which helps you pay for normal healthcare expenses, but also has a high deductible safety net in case something major happens to you, you won’t go broke.

Most people have a bias towards low deductible health plans. Low deductible plans are chosen the most because we fear that what rarely happens. So, we pay a ton of money to have great healthcare coverage, but most of us will never come close to using the coverage we have. Few chose high deductible because we are scared something might happen and we don’t have the money to pay for it. Even fewer chose HSAs, even though it might be the better overall option, but again, we really fear the cost of something bad happens.

This is the basis of almost all insurance, fear.

We almost always choose the most coverage we can get, even when it costs us more in the short-term and long-term. We love safety. We are also, for the most part, really stupid when it comes to math and more specifically statistics. If we did understand basic statistics we would always choose the high deductible plan and put the weekly difference into a conservative investment portfolio. After a decade or two or three we would have this giant mountain of cash, at least about 99.6% of us would!

Fear is a powerful drug.

We buy car insurance and are given options like $250, $500, or $1000 deductible in case we get into an accident. Most of us will choose the lower amounts even those the vast majority of drivers never get into an accident. We buy flood insurance for our houses even when we aren’t in a flood plain because the one hundred year flood plain is a mile away from our house.

So, why am I talking about healthcare deductibles?

We are moving into a high unemployment environment. People are also going to be short on cash, so there’s a good chance when your next open enrollment happens you’ll have more people who will choose a high deductible, cheaper plans. In HR, this pains us greatly, because we want everyone to have the “best” insurance possible.

Why does HR want this? Because we deal with the fallout when someone chooses the high deductible insurance and then something happens and all of sudden it becomes ‘our’ problem to help this employee. So, to not have this pressure, just push everyone to a low deductible.

I’m telling you this is bad advice. HR is giving bad advice. Safe advice, but bad advice, based on math. Real math, not HR math.

 

4 thoughts on “Are Low Deductible Health Insurance Plans Really the Best Plan?

  1. I normally enjoy reading your blog, but you’re making HR sound like spineless idiots here. Anyone who knows anything about benefits will give honest feedback to employees on different plans. I’m a big fan of the high deductible/HSA plan and point out the good (and bad) parts of it.

  2. My organization has a high deductible plan with a very generous HSA contribution annually. We contribute 85% of the deductible (both individual and family) to the employee’s HSA account. The employee has the option to contribute the remainder, up to the amount allowable by the IRS. We contribute this annually, regardless if you used last year’s contribution or not. Once you have met your deductible, the plan pays 100% of health care costs. Even with this generous plan, I STILL have employees choose our higher priced co-pay plan with a low deductible! I have spent hundred of hours running scenarios and coaching employees that they come out better in every situation with the HSA plan.

  3. I agree with you, but as an HR professional I spend hours coaching and educating on the benefits of especially the HSA plan; but also a high deductible plan. I believe the real reason HR professionals steer the other way is lack of Benefit education; not because they fear the fallout.

    It’s about financial literacy and education.

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