The variable high deductible health plan (V-HDHP)

By Robert Hopper

Hopper Insurance Services

The variable high deductible health plan (V-HDHP)

Have insurance companies forgotten how to design pure insurance policies? What about a no-frills health insurance plan that truly is affordable? I think the market for such a policy has the potential to be enormous.

I'm frugal when it comes to buying insurance for myself. Thus far, I have a $3,500 deductible HSA-qualified health plan. I pay all medical bills up to $3,500; including annual physicals, physician office visits, labs, x-rays and prescriptions. The insurance company pays everything over $3,500. If I have a $100,000 medical bill, I pay $3,500 and the insurance company pays $96,500.

Since my plan is bare-bones insurance, the premiums are more affordable than a plan that provides co-pays for office visits and prescriptions. Compared to the lowest cost traditional PPO plan with co-pays for doctor visits and brand-name prescriptions, I save about $200 per month or $2,400 per year, and I put that savings directly into my health savings account. With good health, unused dollars roll over each year; and the account really builds up quickly.

Recently my insurance company levied a substantial premium increase. Logically, if you want to retain a low premium, you simply raise the deductible. But my insurance company does not have a higher deductible. When I called my contact in management for that company, she said they were working on some new plans, and it should be ready by 2010.

In 2005 I wrote my continuing education textbook on health savings accounts for the insurance industry (The HSA Strategy: The Future of Health Insurance in America), and I recommended that insurance companies offer a wide variety of deductibles, so that people can control premiums by raising deductibles. Here is a sample array of deductibles:
    $5,800 (2009)
The $1,500 deductible plan is just right for people with a low tolerance for risk and a willingness to pay a higher premium. HSA-qualified plans must have at least a $1,150 deductible, and $1,500 is a nice round number. Saving just $125 each month ($1500 a year) in the HSA would cover all the expenses up to the deductible. You could plan and save for the future by making additional contributions.

As HSA savings grow to $3,000+, a person might be comfortable choosing a $2,500 or $3,500 deductible plan and pay a lower premium, freeing up more money for the HSA.

Finally, when a person has $10,000+ in his or her HSA, it makes sense to buy a plan with the highest deductible and cut premiums substantially.

The variable high deductible health plan (V-HDHP)

This new plan could serve a very large pool of people who want insurance for the big bills and are willing to pay the smaller bills out of their HSAs.
  • Variable deductible: Insurance companies should offer one plan where the highest deductible equals the out-of-pocket maximum prescribed by the Treasury Department. In 2008 the out-of-pocket maximum was $5,600, and it goes up a little each year. In 2009 the limit is $5,800. Insurance companies can create a $5,800 deductible for 2009, and then raise the deductible as the out-of-pocket maximum specified by the U.S. Treasury increase.

  • Embedded deductible: Now, a $5,800 deductible is a bit scary for families, because with an HSA-qualified high deductible health plan, there is one family aggregate deductible of $11,600. I wouldn't buy that plan. But if the plan included an embedded deductible, that would work. If just one person has large medical bills, he or she only needs to meet the $5,800 deductible.

  • Exclude outpatient doctor visits: In the quest to find more affordable coverage, I really don't need insurance to pay a doctor visit fee. The average negotiated fee for a visit to a general doctor ranges from $65 to $90, and to a specialist from $85 to $150. Maybe insurance companies could exclude routine doctor visits, and in exchange, provide a lower premium.

  • Exclude routine prescriptions: And for that matter, I don't need insurance to pay for a monthly prescription drug that might cost $100 a month. If they exclude the routine prescriptions such as blood pressure, cholesterol and allergy medications, they could offer an even lower premium. Of course, I would like them to continue covering specialty drugs, such as injectable medications that cost in excess of $2,000 per month. These types of medications can be called "large and unexpected," and fall under the concept of insurance.

  • Exclude annual physicals (?): I really think the annual physical benefit is a good benefit, and including an annual physical paid 100 percent by the health plan may encourage people to have that exam regularly. Yet, my current plan doesn't cover it, and I still have a regular exams. For this one variable HDHP, let's not include the annual exam, and squeeze a little lower premium out of the insurance company.
The bottom line

I think there are a substantial number of people who say: "Give me insurance just for the large and unexpected medical bills." Eliminate coverage for routine expenses I can pay out of my pocket. As a trade-off, give me a rock-bottom premium. In other words, give me pure insurance. A $5,800 deductible plan should be the lowest cost plan on the market.

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