High deductible, plus money to pay the deductible?

Yesterday’s post about Whole Foods C.E.O. John Mackey’s ideas for free-enterprise-based health care reform spurred a lot of discussion here. But much of it was about the appropriateness of boycotts and other issues. I would like to hear what you think of one aspect of his plan, one that he is actually employing in his business: Buying high deductible health insurance for his employees (thus bringing the price down), and then giving his employees money in a tax-free health savings account that can roll over if it isn’t used that would pay the deductible.

So, say you had a policy with a $2,000 deductible, meaning that you would have to pay the first two-thousand dollars for health care in a year. Your employer, though, gave you $2,000 in order to cover those expenses. What you didn’t spend, you could keep.

Would this work? People accustomed to not paying for their health care would still not have to. The cost for insurance would surely plummet. The overall cost of health care would probably go down, since a large number of people won’t spend the full two thousand, so that the insurance would never kick in, and people would have an incentive not to go to the doctor when it really isn’t necessary.

Please note, this says nothing about health care reform in the sense of providing such benefits to everyone. That is a separate issue. This is just a different way of handling employer health benefits. I’m not necessarily advocating it, just asking, “why wouldn’t this work?” (I’d love to hear from a Whole Foods employee or someone else who has this kind of plan!)

About Gene Veith

Professor of Literature at Patrick Henry College, the Director of the Cranach Institute at Concordia Theological Seminary, a columnist for World Magazine and TableTalk, and the author of 18 books on different facets of Christianity & Culture.

  • Matthew

    I had exactly this plan through Concordia Service Plans with my last LCMS church. We switched to it January 2009. $5000 deductible, of which the church was paying 1/12 of that $5,000 into a Health Savings Account every month. It was really nice. I then received a divine call in April and was led by God to accept it in May and move to a new congregation. That meaant that the deductible payments stopped of course in May. What really hurts is that two of my children had hospitalizations in April. Since the new church was on plan B (low deductible plan), I was required by Concordia rules to switch to plan B AND still pay the entire balance of the $5,000 deductible for 2009. $3000 out of pocket really really hurts.

  • Matthew

    I had exactly this plan through Concordia Service Plans with my last LCMS church. We switched to it January 2009. $5000 deductible, of which the church was paying 1/12 of that $5,000 into a Health Savings Account every month. It was really nice. I then received a divine call in April and was led by God to accept it in May and move to a new congregation. That meaant that the deductible payments stopped of course in May. What really hurts is that two of my children had hospitalizations in April. Since the new church was on plan B (low deductible plan), I was required by Concordia rules to switch to plan B AND still pay the entire balance of the $5,000 deductible for 2009. $3000 out of pocket really really hurts.

  • Steve

    I am actually on a health care plan that is exactly as you describe and I love it. We have a high deductible insurance policy and there are quarterly deposits into an HSA, pre-tax, by me and my employer (we split it, but they pay a large portion of it).

    Once the deductible is met, everything else is paid at 100%. My first year working for this employer I had to have minor surgery that resulted in medical bills that exceeded both my deductible and my current HSA balance since I was a new employee.

    My employer actually offered to give me an interest free loan for the difference with the idea that as I received my quarterly deposits I would repay my employer. That was not necessary. Once I explained to the hospital the HSA system I was on they were more than willing to work with me and allow me to pay them my quarterly deposit until everything was paid off. Since my deductible had been met I did not have to worry about having money on hand for more medical expenses that year.

    Since then we have had some good healthy years and my HSA has grown. As long as we are able to pay our deductible we can now use that HSA money to pay for approved things such as OTC meds and cosmetic dental work tax free.

    I still pay a lot monthly for my family’s rider, but it is totally worth it.

  • Steve

    I am actually on a health care plan that is exactly as you describe and I love it. We have a high deductible insurance policy and there are quarterly deposits into an HSA, pre-tax, by me and my employer (we split it, but they pay a large portion of it).

    Once the deductible is met, everything else is paid at 100%. My first year working for this employer I had to have minor surgery that resulted in medical bills that exceeded both my deductible and my current HSA balance since I was a new employee.

    My employer actually offered to give me an interest free loan for the difference with the idea that as I received my quarterly deposits I would repay my employer. That was not necessary. Once I explained to the hospital the HSA system I was on they were more than willing to work with me and allow me to pay them my quarterly deposit until everything was paid off. Since my deductible had been met I did not have to worry about having money on hand for more medical expenses that year.

    Since then we have had some good healthy years and my HSA has grown. As long as we are able to pay our deductible we can now use that HSA money to pay for approved things such as OTC meds and cosmetic dental work tax free.

    I still pay a lot monthly for my family’s rider, but it is totally worth it.

  • http://www.bikebubba.blogspot.com Bike Bubba

    I’ve had it, I love it.

  • http://www.bikebubba.blogspot.com Bike Bubba

    I’ve had it, I love it.

  • Ryan

    I have plan like this and love it – though I have heard these type of plans are not as good if you are elderly.

    What would be cool is if I could keep dropping money in the HSA account a make it real big.

  • Ryan

    I have plan like this and love it – though I have heard these type of plans are not as good if you are elderly.

    What would be cool is if I could keep dropping money in the HSA account a make it real big.

  • LisaV

    I’ve only heard of plans were half of the deductible was covered by the employer in HSA deposits and I never knew HSAs could roll over. I have an FSA which is a little different, and you have to use up all the money each year or you lose it. Considering what I pay in bi-weekly premiums every year and copays, I might actually save money on this kind of plan. One would need to be diligent though about keeping the amount of the deductible needed in an emergency fund or something in case of an accident or serious illness and you find yourself with a 2500 dollar bill to pay all at once (if you don’t have enough in your HSA).

  • LisaV

    I’ve only heard of plans were half of the deductible was covered by the employer in HSA deposits and I never knew HSAs could roll over. I have an FSA which is a little different, and you have to use up all the money each year or you lose it. Considering what I pay in bi-weekly premiums every year and copays, I might actually save money on this kind of plan. One would need to be diligent though about keeping the amount of the deductible needed in an emergency fund or something in case of an accident or serious illness and you find yourself with a 2500 dollar bill to pay all at once (if you don’t have enough in your HSA).

  • http://ematthaei.blogspot.com Eric

    Our family went to a high-deductible plan in July 2008. Our deductible went from some complicated formula that translated into roughly $2,000 to a pretty simple $5,000 with a $10,000 family out-of-pocket maximum. Our wellness checkups (one-per year for my wife and I; more frequent for our babies) are covered 100%. It used to be a $25 or $30 co-pay. We have an HSA that won’t quite cover our deductible (yet), but we have other cash that more than covers our out-of-pocket maximums. So for the cost of sharing a risk we are seeing a huge increase in our monthly cash flow. I don’t have the numbers in front of me, but I think the our monthly premiums decreased something like 60%-75%.

    I think this is the way all health insurance ought to be. I understand the desire to encourage people to get regular exams. But I don’t believe covering the cost is enough incentive to get reluctant patients to visit their doctors. I tend to believe that insurance ought to cover the risks of an extraordinary event. Paying premiums to an insurance company so that the company will cover the cost of regular doctors’ exams is about as foolish as paying insurance premiums to cover the cost of your groceries, or your car’s oil changes, or any other regular expense that ought to be planned into your personal budget. I tend to suspect this foolishness is largely responsible for our current mess.

  • http://ematthaei.blogspot.com Eric

    Our family went to a high-deductible plan in July 2008. Our deductible went from some complicated formula that translated into roughly $2,000 to a pretty simple $5,000 with a $10,000 family out-of-pocket maximum. Our wellness checkups (one-per year for my wife and I; more frequent for our babies) are covered 100%. It used to be a $25 or $30 co-pay. We have an HSA that won’t quite cover our deductible (yet), but we have other cash that more than covers our out-of-pocket maximums. So for the cost of sharing a risk we are seeing a huge increase in our monthly cash flow. I don’t have the numbers in front of me, but I think the our monthly premiums decreased something like 60%-75%.

    I think this is the way all health insurance ought to be. I understand the desire to encourage people to get regular exams. But I don’t believe covering the cost is enough incentive to get reluctant patients to visit their doctors. I tend to believe that insurance ought to cover the risks of an extraordinary event. Paying premiums to an insurance company so that the company will cover the cost of regular doctors’ exams is about as foolish as paying insurance premiums to cover the cost of your groceries, or your car’s oil changes, or any other regular expense that ought to be planned into your personal budget. I tend to suspect this foolishness is largely responsible for our current mess.

  • http://www.bikebubba.blogspot.com Bike Bubba

    HSA beats the tar out of FSA. HSA is honor system, FSA takes back a lot of the tax savings in compliance expenses and time. I had HSA with a cash bonus going on–not too bad.

  • http://www.bikebubba.blogspot.com Bike Bubba

    HSA beats the tar out of FSA. HSA is honor system, FSA takes back a lot of the tax savings in compliance expenses and time. I had HSA with a cash bonus going on–not too bad.

  • Anne

    We have this plan only as an individual (no employer contributing), also with an annual check-up paid 100%. It’s great! The HSA rolls over year after year so it ends up being like an IRA if we never have to fully use the funds. We are also more careful about checking on the prices of things such as prescription drugs. When we had the high premium plan, which was excellent except for the high cost, we never paid attention to the cost of lab work, etc, so we are more conscientious consumers.

  • Anne

    We have this plan only as an individual (no employer contributing), also with an annual check-up paid 100%. It’s great! The HSA rolls over year after year so it ends up being like an IRA if we never have to fully use the funds. We are also more careful about checking on the prices of things such as prescription drugs. When we had the high premium plan, which was excellent except for the high cost, we never paid attention to the cost of lab work, etc, so we are more conscientious consumers.

  • Winston

    My employer offers both options – a more traditional option and the High-Deductible option. Because we are in our 20′s, exercise pretty often and stay healthy, I chose the high-deductible. My employer doesn’t put much into the HSA but I’m free to donate whatever I’d like, pre-tax, and like others have mentioned I get to keep whatever I don’t use.

    Because we make enough right now to pay any small medical expenses out of pocket, we are just letting the HSA build, and if ever I lose or leave this job I can carry the HSA with me, and as long as it is used for medical expenses, it remains tax-free.

    Plus, for dual-coverage, I save something like 1500 in premiums a year, along with gaining whatever is put into my HSA.

    But the most convincing argument I saw for the High Deductible plan is that under the traditional plan, I could be responsible for up to 4000 in medical expenses per year, plus the extra 1800 in premiums paid, on top of having no HSA and having to pay co-pays on every doctors visit that don’t contribute to that 4K.

    With the High Deductible, every medical dollar I spend counts towards the 5K, and as soon as I hit it I’m not responsible for any other medical costs.

  • Winston

    My employer offers both options – a more traditional option and the High-Deductible option. Because we are in our 20′s, exercise pretty often and stay healthy, I chose the high-deductible. My employer doesn’t put much into the HSA but I’m free to donate whatever I’d like, pre-tax, and like others have mentioned I get to keep whatever I don’t use.

    Because we make enough right now to pay any small medical expenses out of pocket, we are just letting the HSA build, and if ever I lose or leave this job I can carry the HSA with me, and as long as it is used for medical expenses, it remains tax-free.

    Plus, for dual-coverage, I save something like 1500 in premiums a year, along with gaining whatever is put into my HSA.

    But the most convincing argument I saw for the High Deductible plan is that under the traditional plan, I could be responsible for up to 4000 in medical expenses per year, plus the extra 1800 in premiums paid, on top of having no HSA and having to pay co-pays on every doctors visit that don’t contribute to that 4K.

    With the High Deductible, every medical dollar I spend counts towards the 5K, and as soon as I hit it I’m not responsible for any other medical costs.

  • http://beholdingthebeauty.blogspot.com Steven Carr

    One thing that isn’t mentioned, but that I’m all for, is more doctors going into private family practice with lower costs and the possibility of bypassing health insurance. It’s the health insurance companies that are largely to blame for high health care costs. I would love it if we could get away from our dependance upon the insurance companies. That would be a real health care reform IMHO. Sorry to be off track, but this is a real issue that should be dealt with. HSA’s are a good start.

  • http://beholdingthebeauty.blogspot.com Steven Carr

    One thing that isn’t mentioned, but that I’m all for, is more doctors going into private family practice with lower costs and the possibility of bypassing health insurance. It’s the health insurance companies that are largely to blame for high health care costs. I would love it if we could get away from our dependance upon the insurance companies. That would be a real health care reform IMHO. Sorry to be off track, but this is a real issue that should be dealt with. HSA’s are a good start.

  • http://gollygeeez.blogspot.com/ Z

    Steven, what about hospital fees? The doc’s bills aren’t usually the large part of the problem, especially if one is over forty or fifty and needs more procedures to be done in a hospital?
    I’ve never worked for Whole Foods, but I have a friend who worked at one in in Los Angeles and loved it…way before health care plans were being dissected and discussed like we do today, he said that his plan was the best he’d ever had. He said the management was excellent.

  • http://gollygeeez.blogspot.com/ Z

    Steven, what about hospital fees? The doc’s bills aren’t usually the large part of the problem, especially if one is over forty or fifty and needs more procedures to be done in a hospital?
    I’ve never worked for Whole Foods, but I have a friend who worked at one in in Los Angeles and loved it…way before health care plans were being dissected and discussed like we do today, he said that his plan was the best he’d ever had. He said the management was excellent.

  • DonS

    The above comments are great! This is exactly why I believe high deductible plans, combined with HSA’s, are a big part of the solution to runaway health care costs. I run a small business (law firm), and we moved to this type of plan one year ago. Our company premium was cut in half, and we were able to limit the deductible to the lowest eligible level ($1500) for our employees, so as not to expose them to too much financial risk. We were able to add dental and vision benefits with the premium savings, then took the remaining savings and split them — 50% of those savings were placed into our employees’ HSA accounts to get them started. We will decide each year whether to continue those contributions, and at what level. So far, our employees love it, and we love it! We all find that we are more attentive to the cost of our medical care, and whether we really need to go to the doctor for every little sniffle. But, if we have a serious health problem, the coverage is outstanding, and we have money in our HSA’s to pay the deductible.

  • DonS

    The above comments are great! This is exactly why I believe high deductible plans, combined with HSA’s, are a big part of the solution to runaway health care costs. I run a small business (law firm), and we moved to this type of plan one year ago. Our company premium was cut in half, and we were able to limit the deductible to the lowest eligible level ($1500) for our employees, so as not to expose them to too much financial risk. We were able to add dental and vision benefits with the premium savings, then took the remaining savings and split them — 50% of those savings were placed into our employees’ HSA accounts to get them started. We will decide each year whether to continue those contributions, and at what level. So far, our employees love it, and we love it! We all find that we are more attentive to the cost of our medical care, and whether we really need to go to the doctor for every little sniffle. But, if we have a serious health problem, the coverage is outstanding, and we have money in our HSA’s to pay the deductible.

  • Joe

    I have it and I love it – even without an employer contribution to the HSA. I am married and have three kids, our total family deductible is under $5,000. All normally scheduled check-ups (called well visits) are free to me. All of my wife’s prenatal care is free to me. After we hit the deductible many things are totally free to me and some are an 80/20.

    My employer offers a high deductible plan and two standard plans. We save a lot of money going with the high deductible option. This was even true the year we had our third child, who required an emergency c-section (that put us into the 80/20 category for that cost).

    Many people are afraid of one-time large payments, but if you call the hospital or doctor they will let you pay it off interest free over time.

  • Joe

    I have it and I love it – even without an employer contribution to the HSA. I am married and have three kids, our total family deductible is under $5,000. All normally scheduled check-ups (called well visits) are free to me. All of my wife’s prenatal care is free to me. After we hit the deductible many things are totally free to me and some are an 80/20.

    My employer offers a high deductible plan and two standard plans. We save a lot of money going with the high deductible option. This was even true the year we had our third child, who required an emergency c-section (that put us into the 80/20 category for that cost).

    Many people are afraid of one-time large payments, but if you call the hospital or doctor they will let you pay it off interest free over time.


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