Overview of High Deductible Health Plans

Increase the Number of Enrollees in High Deductible Health Plans (HDHPs)

What is it?

Proposals to increase the use of HDHPs aim to lower costs and improve quality of care by giving consumers a financial incentive to be more involved in making health care choices. An HDHP is a fee-for-service insurance plan with a deductible larger than those for more standard indemnity plans (usually $1,100 per year or more for single coverage; $2,200 or more for families). Many such plans are accompanied by a savings option that allows people to set aside pretax dollars to be used for out-of-pocket health care expenses up to the deductible. The savings options take several forms, including tax-free health savings accounts (HSAs) and employer sponsored health reimbursement accounts (HRAs). Premium costs are lower for HDHPs than for traditional preferred provider organization (PPO) or health maintenance organization (HMO) plans because of the higher deductible. HDHPs may also provide financial incentives for enrollees to participate in exercise programs, health risk evaluations, and disease management.

Proposals to expand the use of HDHPs usually aim to make them more attractive for individuals to purchase and/or for employers to offer by providing deductibility of premium payments, increasing limits on the dollar amounts people can contribute to their pretax accounts, or providing tax credits to low income individuals and families.

How would it work?

In theory, armed with better information about the quality of health care providers and the price of health care services, consumers will become more cost conscious of their own care. HDHPs enable employers to give their workers an option of lower premiums than traditional health plans have and enable workers to purchase coverage at a lower cost. A major concern about HDHPs, however, is that people who pay more out of pocket for their health care may make decisions that adversely affect their health, such as skipping routine screening tests or follow-up visits to save money.

Price and quality transparency are key. Consumers cannot make optimal choices if information on price and quality of health care is not readily available in a usable form. Supporters of HDHPs believe that consumer demand for information will increase the supply.

Has it been tried before?

Legislation enacted by Congress in 2003 paved the way for tax free health savings accounts to be paired with high deductible insurance policies, an arrangement intended to make consumers cost sensitive without subjecting them to the financial risk of a catastrophic illness. About 11 percent of privately insured Americans were enrolled in a high deductible health plan in 2007.