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Small Business Employee Benefits and HR Blog

The High Deductible Nightmare - A Change in Healthcare Trends

January 27, 2015

Under the Affordable Care Act (ACA), Americans are mandated to have health insurance coverage. As a result, the uninsured rate is the lowest it’s been in decades - 12.9% according to a January 2015 Gallup poll. So this means that Americans are better covered and well-protected against large health insurance claims, right? Recent statistics say no - that health plans with high deductibles and out-of-pocket expenses are becoming a significant financial hardship. Let’s look at three trends, and what this says about how healthcare is changing.A Change in Healthcare Trends

Trend 1 - Increasing Health Insurance Premiums

First, let’s look at health insurance premiums - what we pay for coverage.

According to Kaiser Family Foundation (KFF) research, in 2014 the average annual premiums for employer-sponsored health insurance (insurance paid through an employer) were $6,025 for single coverage and $16,834 for family coverage.

As premiums have increased over the past decade, workers have been asked to contribute more. According to KFF, from 2004 to 2014 premiums increased 69% but the worker contribution increased 81%.

But the health insurance premiums alone do not tell the full story, which leads us to trend two.

Trend 2 - Increasing Cost-Sharing (The "Hidden Costs")

To mitigate the costs of rising healthcare, and rising premiums, employers have shifted more costs to workers. Similarly, those who purchase their own health insurance often select a low-cost plan without fully understanding the deductible and out-of-pocket costs they’ll pay when they receive care.

We'll call these costs the "hidden costs." Not because they are actually "hidden" - health insurance companies and/or employers outline these plan details at enrollment time. But rather they are "hidden" because the majority of Americans do not understand the basics of how health insurance works. Most Americans cannot correctly define basic terms such as deductible, co-pay, co-insurance, and out-of-pocket maximums.

The increasing costs, combined with a general lack of understanding about health insurance, are a problem.

For example, without looking at your health insurance statement, do you know how much your deductible is? Many people do not. 

According to KFF, the national average is $1,214 - up $826 from five years ago. Of course, average annual deductible amounts vary significantly and it is now commonplace to have a $1,000, $5,000, or even $10,000 annual deductible.

These out-of-pocket costs can add up quickly.

In fact, the 2014 Milliman Medical Index (MMI) found the total annual cost of healthcare to cover a typical family of four through an employer-sponsored plan was $23,215; with the family of four paying $9,695 (42%) on average. This amount includes premiums and the employee's out-of-pocket family medical expenses. With the Median household income in the U.S. around $53,000/year, medical expenses are representing 18% of income.

These out-of-pocket costs can come as a surprise.

If you don’t understand how your plan is structured, and you don’t have price transparency, these high costs can quickly become a financial hardship leading strain, debt, and bankruptcy.

Trend 3 - Stagnant Wages

Lastly, on top of increasing premiums, increasing out-of-pocket expenses, and a lack of healthcare consumerism are stagnant wages, especially for the lower and middle class.

According to a report by the Commonwealth Foundation, the costs employees and their families pay out-of-pocket for deductibles and their share of premiums continued to rise, consuming a greater share of incomes across the country.

Conclusion

Which brings us to a challenge many Americans face today. You have health insurance - a good plan, you think. But the high deductible and other high out-of-pocket expenses can still mean a financial hardship - a nightmare if you will - when the medical bills arrive in the mail.

So, what is the solution? Is there one?

Healthcare consumerism will help. As more employers move away from employer-sponsored health insurance and as more Americans purchase coverage on their own, we will be in better control of our healthcare. Price transparency will help as well, but we are a ways off from having this in our healthcare system. 

What do you think? Join the discussion and leave a comment below.

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