Keep your deductibles high when you’re forced into the fully insured viper’s den, and lower the deductibles as much as your budget will allow when you self-fund.
By Craig Gottwall
I normally take two different approaches as to whether I prefer/recommend an HDHP.
Are you self-funded or fully insured?
If you are fully insured and must remain that way due to size or cash flow constraints, I like buying the cheapest plan you can find; the boxed wine of benefits, if you will, and coupling it with an account underneath that. Could be an HRA or an HSA.
Why?
Well, why give the carriers more of your hard-earned money? They never lose in the long run. Liken it to walking into a Vegas casino and thinking you’ll consistently win. Pipe dream. They are the largest employer, lobby, and industry in the U.S. They employ battalions of underwriters and actuaries in fancy suits, slicked back hair & thick glasses, assuring their shareholders that they will grow their profitability (your premium) every quarter.
Do what you can for yourself and “self-fund” that $6K, $7K or $8K under the deductible.
Now, if your margins are so thin and times are so tight for you that you must install that plan with an $8,500 deductible and $10,600 out of pocket maximum and you cannot afford to fund an HRA or an HSA, well, you’ve hit rock bottom. And then we need to talk about self-funding with reference-based pricing (RBP) so we can reduce your costs by 30% in one fell swoop.
However, if you are already self-funded (particularly without a network, like on an RBP plan), I don’t want to see high deductibles. In that case, I’m not concerned about you funding an insurer’s gold-plated executive suite toilets. In that case, it is all your money anyway, so let’s put in something that is simple, straightforward, and easy for employees to use.
Recent data from the Employee Benefit Research Institute provides a compelling look at how health care dollars are actually spent. Health care spending is significantly concentrated among a small minority of the population. 20% of folks accounted for 84% of overall spending in 2023. Conversely, 80% of the population accounted for only 16% of the total spend. Most insured individuals use relatively little health care in any given year.
80% of the insured population spends less than $5K per year.
So, if fully insuring, why would you buy that deductible down to a low, sub-thousand-dollar amount? In doing so, the carrier community will punish you with disproportionately higher premiums than warranted. And in their defense, that is their job. If they’re publicly traded, they have a fiduciary responsibility to maximize shareholder value, NOT to ensure you pay a fair premium.
They don’t want you to think about the fact that 40% of your population generates less than $500 in claims in a given year.
Keep your deductibles high when you’re forced into the fully insured viper’s den, and lower the deductibles as much as your budget will allow when you self-fund.
