Penn State employees have a choice to make today. It’s the last day of benefits open enrollment and there’s a choice between two healthcare plans -- the regular PPO Blue plan or the year-old PPO Savings plan. Pam Short, a professor of Health Policy and Administration at Penn State, says the “Savings” plan instituted last year at Penn State is basically a high-deductible plan. Monthly premiums are lower, but the amount employees have to pay before insurance kicks in is higher.
These high-deductible plans are getting more common, and we asked Short, why is that?
Well one of the features of a high-deductible plan that employers like is that it asks employees to pay a bigger share of the bill. The idea is that since it’s the employee’s own money, employees have more “skin in the game” so to speak and therefore more of an incentive to maybe ask a question of a doctor who recommends a test that the employee really is scratching their heads about whether they really need it. To pay more attention to healthcare costs. And there is some evidence that high-deductible plans do hold down total healthcare costs, something on the order of 5-15%.
An employee who doesn’t have many health costs and switches to this “Savings” plan could save money, though.
Right, in a good year, because the premium for the savings plan is a lot less and Penn State even puts in some extra money -- $400 for an individual employee and $800 for a family plan – if the employee doesn’t have a lot of healthcare bills that employee will save so much in premiums and not have many out-of-pocket expenses that they’ll end up ahead with the high-deductible plan compared to the PPO.
But it is a gamble. What happens if that employee gets into a big accident?
So if an employee has a lot of healthcare bills then because the high-deductible plan leaves the employee to pay a lot more on his or her own those bills are going to swamp the premium savings. So an employee who has lots of bills is going to be better off in the PPO then. So the whole trick, the thing about insurance, is that none of us know what’s going to happen next year. So we’re having to guess what’s most likely.
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Deciding which plan to choose goes beyond just taking a guess at what your medical costs will be for the next year. Short says you should have a financial cushion for the high-deductible plan. Even if costs for the two plans happen to balance out for the year, in the Savings plan you pay up front for medical care instead of over time in the form of a premium.
But the biggest factor is probably how much you make, since premiums go up with salary. And to really make an informed decision, Short says you have to crunch the numbers. She’s created two spreadsheets, one scenario show an employee in the highest salary bracket, the other an employee earning at the low end. The amount they might spend on healthcare for the year is listed down the left column -- $1,000, 2,000, 3,000 and so on.
The spreadsheet imagines for each of those scenarios, according to Short, "what would the employee be paying out of pocket, what would the employee be paying for the premium and what’s the total for the employee to pay."
First Short runs the numbers for the high-earner. Her fictive employee makes over 140-thousand dollars and has a family plan. The outcome is a bit surprising.
"In all of these scenarios," says Short, "including way up here where it caps out, you’re better off in the high deductible plan."
In every circumstance the high deductible, or "Savings," plan is cheaper.
Next Short clicks to the employee also on a family plan but making 30-thousand dollars. But the outcome isn’t as cut-and-dried. The high-deductible plan is cheaper up until healthcare costs go over $20,000.
"At this particular point," says Short, "the difference in out-of-pocket overtakes the difference in premium."
In the worst-case scenario, this employee will pay $4,000 more in the high-deductible plan. But in a year with no healthcare expenses, the employee will save $2,000.
Short’s done the math at the extremes, but if your salary falls somewhere in the middle, you can use a worksheet on Penn State’s Office of Human Resources website to compare the two plans for your circumstances. Click here and then on the button labeled "Comprehensive Faculty/Staff Decision Tool."
Open enrollment at Penn State ends today. If you do nothing, your plan will stay the same as last year. But you must log in to say whether you use tobacco products and whether your spouse is eligible for insurance elsewhere, or you will automatically be charged a surplus no matter what you chose for those last year.
