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Workers may need to do more homework when they evaluate health coverage options this fall.
This year, more employers may include a new type of plan that can chop premium payments by nearly 20 percent and give consumers a tax break.
The trade-off is higher deductibles, which have the potential to swamp customers with big bills. The plans, called consumer-directed health plans, vary from employer to employer and require careful comparison with other choices.
The plans have been around for several years, but more employers are considering them as health costs rise and the recession fosters a new push to save money. Employees could see these higher-deductible plans among their choices for the first time as open enrollment, the annual window when businesses allow employees to adjust their coverage, begins in a few weeks at many companies.
A consumer-directed health plan typically pairs insurance that carries a high annual deductible with an account fed either by an employer or by the employee through pre-tax contributions to help cover costs.
The deductibles - which start around $1,200 a year and can approach $10,000 for family coverage - make the customer pay more out-of-pocket for care before most coverage starts. The idea is to give clients an incentive to spend carefully, while providing protection from devastating medical bills. Some plans also provide annual physicals and other screenings at no cost to patients to encourage basic and preventive care that can stave off bigger bills down the line.
Some employers help cover the out-of-pocket cost by funding what's called a health reimbursement arrangement for employees to tap. The money belongs to the company and stays with it if an employee leaves.
A common alternative is to offer health savings accounts. Employees can deposit pre-tax dollars to cover medical expenses not covered by insurance. Some employers contribute to these HSAs. Unused money grows in the account, which belongs to the worker and is portable if he or she changes jobs.
A consumer-directed health plan can help people on both extremes of the health spending spectrum, but it can be risky for some who fall in between or for those who don't fund their HSA, financial planners and insurance brokers say.
The plans offer premiums that are, on average, about 19percent cheaper than more common insurance plans with lower deductibles, according to the Kaiser Family Foundation and the Health Research and Educational Trust.
People who use little health care can benefit from that price break and build up HSA accounts. Plus they earn unique tax benefits. Money deposited in the accounts is either taken from paychecks before taxes, or it can be a deduction. It grows tax-free, and then it is not taxed when taken out for qualified medical expenses.
People who use a lot of health care can benefit because HSA plans come with limits set by the government for how much money a customer spends out of pocket each year. Next year, that will be $5,950 for individuals and $11,900 for family plans, counting the money spent on the deductible. Out-of-pocket maximums are typically listed in the insurance benefits summary.
Depending on a plan's coverage, these lower limits could help someone with a chronic condition like heart disease or diabetes or someone who needs pricey medications, said Paul Frontsin, director of health research and education for the nonprofit Employee Benefit Research Institute.
It's the people in between who really have to think hard about risk and what their plan offers. These plans can be a poor fit for people with tight budgets and little savings. Out-of-pocket expenses can pile up quickly.
"I would be worried about somebody who's really having a hard time making ends meet, switching to a higher deductible plan if they also had health issues," said Jon Beyrer, vice president of wealth management for Blankinship & Foster, a Solana Beach, Calif.-based financial advisory firm.
Consumer-directed plans have grown more popular in recent years with many businesses that offer coverage. Benefits consultants say companies like the lower premiums and the fact that these plans encourage workers to use them more judiciously.
The percentage of employers with more than 1,000 workers who offer a consumer-directed plan has risen from 10percent in 2005 to 28 percent this year. That figure is up from 4 percent to 18percent over the same span for companies with 200 to 999 workers.
Workers can view consumer-directed plans as a major slash in benefits, which they can be, depending on how much an employer sacrifices coverage to cut costs. This can make companies reluctant to offer them.
