A NEW STUDY has found that many people in employer-sponsored health plans are enrolling in plans that are costing them more than they ought to be paying.
Many employees choose pricey plans with low deductibles, which force them to spend more up front on premiums to save just a few hundred dollars on their deductible.
As result, many employees are spending hundreds, if not thousands of dollars more on their health care/health coverage than they need to.
Study 1: The deductible angle
A study by Benjamin Handel, a U.C. Berkeley economics professor, found that the majority of employees at one company he studied were in the highest-premium, lowest-deductible plan ($250 a year) their employer offered.
As a result, the average employee spent about $4,500 a year on health care, compared to only $2,032 had they gone with the cheaper plan (which had a $500 annual deductible) and received exactly the same care.
Study 2: Too many choices?
Additionally, the research paper “Choose to Lose: Health Plan Choices from a Menu with Dominated Options,” published in The
Quarterly Journal of Economics, found that more choices also didn’t yield more savings for individuals in employer-sponsored plans.
The study examined a company’s health plan offerings, that included 48 different combinations of deductibles, pharmaceutical copayments, coinsurance and maximum out-of-pocket expenses. All of the plans offered the same network of doctors and hospitals. The results:
Workers paid an extra $528 in premiums for the year to keep their deductible at $750 instead of $1,000. In other words, they paid $528 to save $250.
• For nearly every plan with a deductible of $1,000, the additional premiums required to reduce the deductible, with all other plan attributes fixed, exceeded the maximum possible out-of-pocket savings provided by the lower deductible.
• The lowest-paid workers were significantly more likely to choose the most expensive plans.
Both studies looked at plan options with relatively low deductibles when compared with high-deductible health plans, which have become more popular with time.
Their findings: At firms offering both an HDHP and a low-deductible plan, selecting the HDHP typically saves more than $500 a year.
Strategies
The Study 2 authors surmised that many people choose the costlier health plan for two reasons:
• Inertia– It’s easier for consumers to stick with their old plan rather than crunch the numbers to see if a new plan may be more appropriate.
• Deductible aversion – When employees see a low-deductible plan they may associate it with better quality care, even though the network and coverage may be the same.
The best strategy to guide your staff to the plan that best suits them is to educate them. You should have workshops for your staff prior to open enrollment, to help them understand why the higher-deductible plan may often be the best choice for them if they want to save money on their overall premium and out-of-pocket expenses.
Ideally, you could encourage them to set aside the same amount of money in their
HSA that would be enough to cover their deductible. This way, your employees would not feel burdened by health expenses they may have to pay for during the year.
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