High-deductible health plans are defined by the Internal Revenue Service (IRS) as any plan with a deductible of at least $1,400 for an individual and $2,800 for a family. In addition to these deductible figures, yearly out-of-pocket expenses (deductibles, co-payments and coinsurance) in 2020 cannot exceed $6,900 for an individual and $13,800 for a family.
High deductible health plans now constitute the fastest growing percentage of all employer based health insurance plans. These types of plans have steadily increased in market share from 11.4 percent in 2006 to 46.5 percent in 2016. Their use is more concentrated in small businesses. With this steady increase in prevalence, increasing numbers of individuals are having to pay for a far greater portion of upfront healthcare expenses. So what exactly is driving this trend?
There are two main drivers of high deductible health plan growth. The first occurred with the Medicare Prescription Drug Improvement and Modernization Act in 2003. A provision in the law permitted the utilization of health savings accounts, which permitted its user to put pre-tax account into an investment account that could used to pay for qualified medical expenses. These could only be used if they were paired with a high-deductible health plan which then exposed the enrollee to greater out of pocket medical expense. Also called a medical IRA, HSAs, as a tax free investment vehicle, became an attractive option for many individuals on these merits alone.
The second main driver has been the use of high-deductible health plans to limit health insurance premium growth which at the time was increasing about 8% a year on average. By offering an option where employees were responsible for more out of pocket expenses, premium growth could be limited.
Taken together, these trends have driven demand for price transparency in healthcare. Before high deductible health plans came to prominence, an enrollee in a health plan would typically pay pre-determined, set levels of copayments. But today, with so many people enrolled in high-deductible health plans, the upfront expenses shouldered by patients has resulted in a demand with accurate and timely healthcare price information in the form of negotiated rates between insurance plans and providers.
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