health insurance

High-Deductible Health Plans: Don’t Let the Name Scare You Off

Some people are biased against high-deductible health insurance plans — just because of the name. It’s unfortunate, because for most people an HDHP can save them money over a PPO.

Employees have become more focused on their financial health in the wake of the COVID-19 pandemic. As a result, American workers are paying closer attention to their workplace benefits. A recent consumer survey from Voya shows that nearly 6 in 10 benefit-eligible employees (56%) spent more time reviewing their benefits offered by their employer during their most recent open enrollment period.(1)

This is good news and totally understandable: American workers want to protect the health of their families and select benefits coverage at a price they can afford. Industry research shows health care costs are rising twice as fast as incomes,(2) which means — now more than ever — it’s important not to overspend on health benefits. However, employee bias toward certain health plans could be influencing their decision, which could lead to overspending on health care and also hurt their future retirement savings.

Uncovering employee bias against HDHPs

The most common health plans that employees have access to through their employers are Preferred Provider Organization (PPO) and High-Deductible Health Plans (HDHPs). The PPO option typically has a lower deductible with higher premiums, while the HDHP option typically has higher deductibles with lower premiums and is commonly paired with a tax-advantaged health savings account (HSA) — a powerful savings and spending vehicle. New research from Voya uncovers American workers have a bias against HDHPs, which could be costly — both now and in the future.(3)

As part of the study, Voya designed an experiment where participants were presented with two different plans and told to think of them as identical in quality of care, access to care and all other features beyond cost. The only difference in the HDHP vs. PPO plans was the premiums and deductibles. Almost two-thirds of study participants (65%) chose the PPO— despite the fact that the study was purposefully designed so the HDHP would always be the optimal financial choice.(4)

As a result, depending on how much they used their benefits, the average employee was overspending on their health care plan between $500 and $2,500 more through the year.(5) If employees took the money they were overspending on health care and put it in a retirement account instead, like a 401(k) or IRA where it has the potential to grow over time, the results could be powerful.

Why are employees choosing the less-optimal health plan?

Voya research uncovered three key reasons:

  • The name of the plan influenced enrollment. In Voya’s study, the name of the plan had a clear impact on employee choice. In fact, participants were almost twice as likely to choose a PPO over an HDHP that was branded with the words "high deductible" in its name. Yet when the plan names were unbranded, the gap was much smaller. Participants were almost just as likely to pick an HDHP (47%) vs. a PPO (53%).(6)
  • Many employees prefer to “set-and-forget” their coverage. Another key factor was the propensity of employees to simply duplicate their previous year’s plan selection. Approximately 89% of respondents said they just pick the same health plan from the prior year, especially those currently enrolled in a PPO vs. a HDHP (94% vs. 80%, respectively).(7)
  • A majority of employees want to avoid deductibles. Another significant factor in the Voya study was an aversion to deductibles in general. Almost two-thirds of participants (63%) said they pick the plan with the lowest deductible.(8)

Which health plan is right for me?

This is a common question, but the answer is not always so simple. In order to understand the financial impact of enrolling in a plan that isn’t the right fit, Voya teamed up with SAVVI Financial to conduct an analysis of actual health care spending in 2018 using a national database of claims information provided by the U.S. Agency for Healthcare Research and Quality. With that claims data, we then compared it to plan design information from the Kaiser Family Foundation to see how employees would have fared financially if they had an “average” PPO or HDHP.

What we found was that — across a variety of age ranges — the HDHP would have been a better financial choice. Specifically, the analysis showed the average individual would have saved the following amount by choosing an HDHP over a PPO plan(9):

  • 25-34 age group saved $566 annually
  • 35-44 age group saved $481 annually
  • 45-54 age group saved $395 annually
  • 55-64 age group saved $326 annually

It’s important to note these savings are just for individuals with single coverage — the analysis showed that savings could have been even higher for family groups.

As part of the claims analysis, the study also discovered that almost 60% of employees had less than $2,000 in claims, where savings under an HDHP plan are highest — and approximately 16% had no claims at all.(10) By selecting an HDHP plan with lower premiums and pairing with a tax-advantaged HSA, many employees could be spending less on health care. With that being said, everyone needs to weigh the risks and benefits. You should look closely at the health plan options offered by your employer and carefully consider your expected health-related expenses for the upcoming year. In some cases, a traditional PPO plan might be the better choice, while for others the HDHP might be more affordable.

Maximizing your workplace benefits

Now more than ever, high costs, combined with the complexity of choosing the right health plan, can contribute to difficult and stressful decisions. Yet rushing through these decisions without proper research or consulting your employer can be costly.

Therefore, it’s smart to plan ahead. During benefits open enrollment, most employees are making all of these critical decisions — including their health plan selection — in less than 17 minutes.(11) That’s less time than the average streaming service user spends scrolling through their options as they decide what to watch. It’s also not enough time to get to know the nuances of each plan type, let alone calculate the premium differences, tax implications and benefits of each choice.

And remember, you don’t have to struggle to figure it out on your own. Your HR team can answer questions, share additional information and likely provide access to decision-support tools — like budgeting and health-expense calculators — to help you think holistically about your health and wealth needs. Just make sure you approach benefits planning with an open mind, and don’t let any preconceived biases influence your decision — or it could literally end up costing you.

1) Voya Financial survey conducted through Ipsos on the Ipsos eNation omnibus online platform among 1,005 adults aged 18+ in the U.S. (featuring 294 who are currently working and benefits-eligible). Research was conducted Dec. 17-18, 2020.  
2) Based on 2018 data from the U.S. Agency for Healthcare Research and Quality’s Medical Expenditure Panel Survey.  
3, 4, 5, 6, 7, 8) Based on an online survey conducted by Voya Financial, in partnership with Russell Research, between Sept. 2–6, 2020, among 315 U.S. consumers currently enrolled in an employer-sponsored health plan. 9) Costs for a PPO plan are calculated as premiums plus out of pocket costs, less federal tax savings from contributing to an FSA to pay out of pocket costs up to current contribution limits. Costs for an HDHP plan are calculated as premiums, plus out of pocket costs, less average employer HSA contribution, less federal tax savings from contributing to an HSA to pay out of pocket costs up to current contribution limits to the extent these quantities exceed employer contribution. Federal tax savings for FSA and HSA are calculated corresponding to a 22% marginal federal bracket and 7.65% FICA payroll tax. 10) Based on 2018 data from the U.S. Agency for Healthcare Research and Quality’s Medical Expenditure Panel Survey. Analysis completed by SAVVI Financial, LLC.  
11) Businessolver “What Netflix Can Teach You About How Employees Shop for Benefits,” 2018
SAVVI Financial LLC (‘SAVVI’) is an investment adviser registered with the Securities and Exchange Commission. SEC registration does not imply a certain level of skill or training. Voya Financial, the parent company of Voya, and a number of other Voya Financial affiliates, have financial and business relationships with SAVVI, which create an incentive for Voya to promote SAVVI’s products and services. You should access and read SAVVI’s Firm Brochure, which is available at this link: https://www.savvifi.com/legal/form-adv. It contains general information about SAVVI’s business, including conflicts of interest.

About the Author

Rob Grubka, Fellow in the Society of Actuaries

CEO, Health Solutions, Voya Financial

Rob Grubka is chief executive officer of Health Solutions for Voya Financial. In this role, he is responsible for product development and management, distribution and the end-to-end customer experience for Voya’s stop loss, group life, disability and supplemental health insurance solutions, as well as health savings and spending accounts, offered to U.S. businesses and covering more than 6.6 million individuals through the workplace.

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