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It’s 2018; What is Fair and Good Health Insurance Coverage?

True or False: Health insurance premiums used to be affordable and 100% coverage for hospitalization was common. If your immediate reaction was to respond “True” you are correct. Go back 35 years and the vast majority of employers offered health insurance plans with no payroll deductions, plus 100% hospitalization coverage. In the 1980’s this was commonplace for workers, as were bell bottoms, hair covering the ears for men (think Sonny Bono) and big hair for women (not Cher then, but Farrah Fawcett for sure).

To further promote the point that I am referring to the 1980’s as a “time long ago”, my 24 year old daughter recently dressed up to attend a 1980’s retro-party. Ouch for me as I was her age back then!

This reference about historical standards for health insurance coverage offers a baseline to review what is good and fair coverage today. Health insurance is much more expensive due to medical advances and our population living longer. That tells only part of the story though, as government mandates for what must be covered have expanded drastically.

With the ACA (Affordable Care Act), the Federal Government has decided what is good enough coverage. Surprisingly it allows annual out of pocket maximum exposure of $7,350 per person ($6,650 with an HSA qualified plan) before insurance must pay in full at 100%. From my perspective, these maximum exposure amounts are too high for many of us. Add on top that the government allows employers to legally charge almost 10% of pay for single coverage, plus more when insuring dependents, and its no wonder there is ongoing discourse about a single payer government plan solution.

What is fair today from our perspective are plans with a $4,000 to $5,000 maximum out of pocket exposure each year. Many employers offer this greater level of protection than the government allows. In addition, more an more employers are offering pre-tax plan alternatives. I am referring to FSAs (Flexible Spending Accounts), HRA (Health Reimbursement Arrangement) and HSAs (Health Savings Accounts).

Since there are rules which differentiate each one of these tax favored programs because “one size does not fit all”, we recommend that employers offer the following:

  1. One HDHP plan with the option to select HSAs or a combination of an HRA and FSAs.
  2. An HDHP as noted above and a second, higher cost plan that includes first dollar copays for covered services
  3. Offer a third plan option that is an HMO

Charging payroll contributions to cover the entire cost of the premium for more expensive plans is also becoming a standard, as it establishes a baseline expense for the employer which is non-discriminatory, versus charging the same percentage of premium for lower and higher cost plans.

Will we ever get back to a time of 100% hospitalization coverage? Not like the 1980’s, but for the people who have invested in HSAs and built up savings over time, they achieve 100% coverage, at least from a cash flow perspective. As an example, if my out of pocket exposure is $6,650 and I have $7,000 saved in my HSA, there are enough funds to pay all of my out of pocket expenses if hospitalized. And only 11% of the population is hospitalized each year.

Building an HSA balance takes accepting risk, plus a type of savings discipline that is a challenge in current times, due in part to the opportunities we have to spend money on comforts like eating out, going to concerts and movies, plus purchasing the latest mobile device.

My last blog recommends increasing payroll taxes to make premiums more affordable. If you review it you may accept the reasoning as it follows the same concept that employers in the 1930s and 1940s used when offering insurance coverage to workers in order to make the cost of hospitalization affordable.

The only thing that is not “retro” about the 1980s is the music. How about that Rock n Roll!

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