Currently, many Americans select major medical insurance plans with high deductibles, whether they enroll through their employers or through the Affordable Care Act (ACA) marketplace. This might be a plan that’s defined by the IRS as a “high deductible health plan” or a traditional plan that offers, relatively speaking, high deductible options as a way to keep monthly premiums more affordable.
But it also means people are assuming responsibility for sometimes exorbitant out-of-pocket healthcare costs—costs that may be contained with help from supplemental healthcare coverage.
Let’s take a look at the market’s trend toward higher deductibles—and higher out-of-pocket costs—and find out how an insurance portfolio containing supplemental plans can temper people’s increased financial exposure and provide invaluable peace of mind.
Rising family premiums and deductibles
While the rise in family premiums and deductibles has been modest in recent years, the story is different when looking a bit further into the past. Family premiums have risen 47% since 2011.1 The average deductible in 2021 was $1669, and in 2011 it was $991, an increase of 92%. People who work for companies with 200 or less employees are paying more out of pocket on deductibles than those who work at larger firms ($2379 vs $1397). 1
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Increasing policyholders’ cost sharing responsibility—defined by Healthcare.gov as “the share of costs covered by your insurance that you pay out of your own pocket”—has been a key way to keep insurance premiums affordable and within reach of more Americans. The basic formula is: higher out-of-pocket costs = lower monthly insurance premiums.
The logic goes, an individual or family assumes more personal financial responsibility for paying their medical expenses on the back end, in the form of deductibles, coinsurance and copays (with annual deductibles being the “biggie”) in exchange for a lower cost of insurance coverage on the front end, in the form of monthly premiums.
But as deductibles rise, so do out-of-pocket costs
The reality consumers face is that higher deductibles mean they need to pay even more out-of-pocket before their insurance starts paying benefits. And
keep in mind that in addition to deductibles, most major medical plans require policyholders to pay coinsurance and copays until they reach their annual out-of-pocket maximum as defined by the U.S. Department of Health and Human Services. The federal government sets the annual out of pocket maximum limit a policy holder must pay. In 2021, those maximums were $8550 for individuals and $17,100 for family plans. 2
These maximums offer important protection against healthcare cost-related financial catastrophe, but coming up with thousands of dollars to cover medical bills is an insurmountable challenge for many Americans, especially those without adequate savings on hand. As we show in Voluntary Benefits can Offset Employees’ Financial Consequences of, the share of privately insured adults with deductibles of $1,000 or more has doubled since 2010.
What if something happens?
While ACA-qualified major medical plans cover some basic services first-dollar, most medical bills will be subject to the plan’s cost-sharing requirements. Insurance is meant to provide financial protection in case “something big” happens, after all, and usually, this “something big” is unexpected, resulting from an accident or serious illness. Related expenses, which usually include both medical and non-medical bills, are the insured’s responsibility up to their plans’ out-of-pocket maximum.
The bottom line is that these costs are difficult for most people to manage—especially if they have a high deductible to meet before their major medical plan kicks in—and protection from a supplemental healthcare insurance policy can make a difference.
Supplemental insurance may help
Consider the example of Mary, whose major medical plan has an unmet $4,500 annual deductible. Let’s say Mary is involved in a minor car accident and incurs $3,500 in medical bills, primarily for emergency room and diagnostic services. These costs are subject to her major medical plan’s annual deductible, so she is billed for the full $3,500. Unfortunately, she doesn’t have this much in her savings account, so she pays the majority of her bill using her credit card.
If Mary had a supplemental accident insurance plan, her injury would likely be covered. That means she’d receive cash benefits she could use to help pay her medical bills, preventing her from depleting savings and tapping into credit. In essence, her supplemental accident plan would lower—if not eliminate—her out-of-pocket expenses, making it easier to meet her major medical plan deductible.
1 Stephen Miller, C. (2021, November 17). Average family premiums top $22,000, up 4% in 2021. Retrieved May 5, 2022, from https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/average-family-premiums-up-4-percent-in-2021.aspx
2 Out-of-pocket maximum: What is it & how it can help you save. (n.d.). Retrieved May 5, 2022, from https://www.policygenius.com/health-insurance/out-of-pocket-maximum/
Accident Insurance is underwritten by Combined Insurance Company America (Chicago, Il). In New York, this coverage is underwritten by Combined Life Insurance Company of New York (Latham, NY). Exclusions and limitations apply, see policy for complete details.