Are High Deductibles the Enemy?
3 min read •
30 sec brief
Healthcare costs are soaring and steadily increasing at a higher rate than inflation. Who or what is responsible and are high deductibles the villain of healthcare? Health Costs Are Rising Heatlhcare is a delicate race for most Americans and seems to be running a furious rate.
Healthcare costs are soaring and steadily increasing at a higher rate than inflation. Who or what is responsible and are high deductibles the villain of healthcare?
Health Costs Are Rising
Heatlhcare is a delicate race for most Americans and seems to be running a furious rate. Health costs currently account for 18% of the US GDP and ranks as the #1 cause of credit card debt. It’s top of mind socially, politically and economically and maybe, more importantly, it seems to be stuck in the mud.
We know out of pocket costs are rising for individuals and families, both relatively and in terms of real dollars illustrated by the fact that healthcare costs are increasing at a higher rate than inflation. The average healthcare cost for an American has now breached $10,000 per person per year.
High Deductible Health Plans (HDHPs)
In order to compensate for these rising costs, and still offer healthcare plans to their employees, employers have driven adoption of high deductible health plans (HDHPs). In fact, HDHPs now account for 29% of all employer-sponsored health plans, up from 20% in 2014. This has been an expected compromise on the employer part. Employers see lower costs per employee and employees often see lower deductions from their paychecks, which is great for both sides. However, these plans by definition have higher (short term) out of pockets costs. Are they a major factor in driving health cost up in the US?
On the surface, it seems like an easy scapegoat, but as we dig deeper high deductibles plans might open the door to a long-term healthcare savings opportunity. What if I told you, you could pay less for healthcare today and save more money for the long term? This might not be universally true, but let us show you why it might apply to you.
The one ray of sunshine that accompanies higher deductibles, specifically an HDHP (high deductible health plan) is an HSA. HDHPs are HSA eligible (full eligibility details here). HSA allows individuals and families to save pre-tax dollars for health costs or long term health savings. In 2018, IRS guidelines allow for $3,500 for individual and $7,000 for family HSA contributions. These pre-tax dollars that include tax-deductible contributions, tax-free interest, and tax-free withdrawals (for medical expenses) can offset the financial costs of high deductible health care plans. In that way, short term cost might rise, but it provides a clear path and tax vehicle to save for healthcare for years to come.
These nuances of short-term vs. long-term health costs and savings require more research, insight, and education for individuals and families. There is no one sizes fits all, but we all must do our best to strike a balance to mitigate costs and increase savings in a healthcare landscape that sure isn’t making this easy. Let’s start with HSAs and go from there!
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