Evaluating the Cost of a High-Deductible versus Comprehensive Healthcare Plan
This calculator can be used to compare the cost of a high-deductible healthcare plan with an HSA versus a comprehensive medical plan. The calculator needs a total of eleven inputs, many of which are found in the details of the insurance policy, including:
- An estimate of the insured’s annual medical costs
- The policyholder’s marginal federal income tax rate
- The monthly premium paid for the comprehensive healthcare insurance policy
- The annual deductible for the comprehensive plan
- The coinsurance percentage, once the annual deductible has been satisfied. This is the percentage of the medical costs paid by the policyholder
- The out-of-pocket (OOP) maximum paid by the policyholder, this includes the deductible and their share of the coinsurance payments
- Whether the high-deductible / healthcare savings account applies to a family or single policyholder
- The monthly premium paid for the high-deductible healthcare plan
- The annual deductible for the high-deductible plan
- The coinsurance percentage for the HDHP, once the annual deductible has been satisfied. This is the percentage of the medical costs paid by the policyholder
- The OOP maximum paid by the policyholder for the HDHP
The calculator then provides the user with three sets of outputs, including:
- The medical payments made for each of the three healthcare insurance scenarios (comprehensive, high-deductible and high-deductible with a health savings account)
- The annual premiums paid for each of the three healthcare insurance scenarios
- The total annual cost of each plan, which include both the premiums and medical payments
- Finally, for the high-deductible plan with a health savings account, an estimate of funding level for the scenario modeled
Healthcare Insurance Options: High-Deductible or Comprehensive Plans
Companies started phasing out managed care programs like HMOs and began offering high-deductible healthcare plans, or HDHP, in addition to more traditional comprehensive healthcare plans. Unfortunately, although the term “high deductible” is appropriate for HDHPs, it also create a hurdle to movement towards these types of plans. Even when the economics favor them.
While there are significant differences between comprehensive and high-deductible healthcare plans, they have several elements in common. For example, both require the participant to pay some out-of-pocket costs before the insurance company starts paying a portion of the medical costs. Comprehensive plans have lower deductibles, typically hundreds of dollars, while HDHP have higher deductibles, typically well over 1,000 dollars here in the United States.
Once the deductible limit is reached both plans may also have a coinsurance feature, which means the cost of medical services is shared between the insured and the insurance provider. In this calculator, the coinsurance rate refers to the percentage of medical costs paid by the policyholder. So, if a value of 70% is entered in that calculator, it means the policyholder pays 70% of the medical costs and the insurance provider pays 30% of these costs. Finally, both types of plans will also have an out-of-pocket, or OOP, maximum. This is the largest amount of out-of-pocket costs paid by the policyholder.
Policy Premiums and Out-of-Pocket Costs
When employees go through open enrollment and select their healthcare plans, they oftentimes only compare deductibles and OOP maximums. In nearly every case, the comprehensive plan will be viewed more favorably. More importantly, when doing this comparison, the employee should be looking at these maximums along with the monthly premiums they are paying for each policy. When calculating the total potential cost of healthcare, including premiums, the economics may flip to favor high-deductible healthcare plans.
Our calculator takes the OOP medical costs plus the monthly premiums into consideration. It also models the advantage offered by a Healthcare Savings Account, or HSA, which is an employee funded account (and oftentimes employers supply funding too). HSAs provide the fund owner with the ability to set federally tax-free funds aside to pay for medical expenses. In addition to being tax-free these money in the account is always available to the policyholder, it does not expire if the funds are not used in a calendar year. If the funds are used to pay for the designated medical costs, the funds remain tax-free. HSAs are also portable, meaning as an employee moves jobs, they can transfer those funds into their HSA with a new company.