disability-insuranceIn health insurance, there’s a tradeoff between deductibles and premiums. The higher the premium, the lower the deductible, and vice versa. High-deductible health plans (HDHPs) are attractive to many consumers, in part because of the relatively low premiums, but also because people who are enrolled in HDHPs are eligible for Health Savings Accounts (HSAs).

At the same time, there’s a risk. If someone with an HDHP becomes seriously ill or injured, they can be left with major out-of-pocket costs, and they might not have HSA funds to cover these expenses.

Let’s look at high deductible plans, how they work, and why the need for disability insurance is even more critical for clients enrolled in one.

How High-Deductible Health Plans Work

Each year, the federal government determines the minimum deductible and maximum out-of-pocket expenses for a health plan to qualify as a HDHP. Minimums and maximums vary by single coverage and family coverage.

For calendar year 2021, the IRS defines HDHPs as plans with an annual deductible of $1,400 or more for self-only coverage and $2,800 or more for family coverage. The out-of-pocket expenses should not exceed $7,000 for self-only coverage and $14,000 for family coverage.

Health Savings Accounts (HSA), tax-favored savings plans, are intended to help cover deductibles, coinsurance, and co-pays associated with HDHPs. Annual contributions to HSAs are limited; 2021 maximum contributions are $3,600 for individuals with self-only coverage and $7,200 for people with family coverage.

The Downside of HDHPs

In theory, HDHPs and HSAs can work very well. People don’t pay high premiums for medical care they don’t end up using, and if they do need more expensive care, they can dip into their HSA funds.

But that’s assuming they actually have HSA funds. According to one study, about one in three adults enrolled in HDHPs don’t even have an HSA, and most of those with HSAs haven’t contributed anything in the last year.

If these people become seriously sick or injured, they’ll need to find another way of paying their out-of-pocket costs. For a family, this could be as much as $14,000 in 2021 – and that’s not including premiums or expenses that aren’t covered by insurance.

At the same time, adults suffering from an illness or injury may also be dealing with missed work and lost wages. It’s easy to see how the situation can become financially untenable fast.

Talk to Your Clients About HDHPs and Paycheck Protection

If you don’t sell health insurance, you might not think to ask your clients about their coverage. This could be a mistake. Asking your clients about their health coverage opens the door to an important conversation.

If your clients say they are enrolled in HDHPs, ask them how they would cover the maximum out-of-pocket costs plus lost wages. If they don’t have an easy answer ready, this is a great opportunity to talk to them about disability insurance. 

Talk to Employers About Voluntary Benefits

Many employees offer HDHPs. According the KFF’s 2020 Employer Health Benefits Survey, 62% of workers who are offered employer-sponsored health coverage have access to one or more HDHPs. In some cases, workers might have no options other than HDHPs. Average deductibles have been increasing in recent years, and this is partially due to increased enrollment in HDHPs.

A voluntary disability insurance program fills a very real need for financial protection without increasing the employer’s benefit expenses. Talk to business owners and benefit decision-makers about offering voluntary disability insurance to reduce the financial risk to the employee.

Talk to your DIS representative to learn more about the benefits of voluntary disability plans. You’ll find them to be affordable with simplified enrollment and underwriting. We can also work with you to design an affordable individual disability insurance policy that offers an added level of financial security for clients enrolled in HDHPs. Contact us for a quote, and download our client handout, DI at Work, 3 Great Options.

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