Confusion about out-of-pocket health care costs is making some people reluctant to seek the health care services they need.
A survey of Wisconsin public employees by the La Follette School of Public Affairs at the University of Wisconsin—Madison aimed to learn more about people’s experiences with their health plans and their understanding of the health care system. Professor J. Michael Collins, faculty director of the Center for Financial Security at UW–Madison, shared survey results during a May event titled, “Managing Out-of-Pocket Medical Expenses: How Well are Families Prepared for a World of High Deductibles?”
The survey shows that employees are reacting differently than employers may anticipate when they introduce higher out-of-pocket costs. Importantly, these issues occur for both people with more traditional coverage, as well as those with high-deductible health plans (HDHPs). HDHPs are often framed as a way to encourage employees to make thoughtful health care decisions by giving them more “skin in the game.”
HDHPs typically increase enrollees’ out-of-pocket costs up front; however, when paired with Health Savings Accounts (HSAs) the net result may be a lower cost to the employee at year-end. Individual results can vary depending on health care usage, and the timing of when care is needed.
Overestimating Out-Of-Pocket Health Care Costs
The survey gathered input from 2,190, public employees enrolled in health plans from the Wisconsin Department of Employee Trust Funds (ETF) in March 2019. Findings include:
- Roughly one-third of enrollees in both HDHPs, as well as traditional plans with lower out-of-pocket costs, have skipped a test or treatment due to out-of-pocket costs. People were more likely to skip costs earlier in the calendar year, before their deductible has been met.
- People with both kinds of plans find it hard to estimate health care costs, with many respondents overestimating their out-of-pocket share of costs for physical therapy or an MRI scan. People with an HDHP were slightly more accurate at estimating costs. About 60 percent of people with a traditional plan overestimated the actual costs of care, and almost half of those people on an HDHP plan overestimated the costs. The concern is that these people may unnecessarily avoid getting care based on these overestimates of out-of-pocket costs.
- Many people are also unaware that routine, preventive services provided in-network are covered at 100 percent, with no out-of-pocket costs, as required by federal law. Sixteen percent of traditional plan enrollees and 22 percent of HDHP enrollees expected an annual physical to cost more than $100 out-of-pocket, for example.
- People not using an HDHP are largely not willing to consider these plans. While most (71 percent) of people currently in an HDHP would enroll again, 77 percent of those with traditional plans are “not at all likely” to want to use an HDHP in the future.
- People are confused about deductibles, co-payments, maximum out-of-pocket costs and other terms. For example, about half of respondents, or 54 percent, thought they had access to an HSA to save for out-of-pocket costs, but based on administrative records, they would not be eligible to make contributions to an HSA. Perhaps they were referring to a Flexible Spending Account, but survey responses on several topics show similar confusions.
The Link to Emergency Savings
Professor Collins noted that the inability to cover unexpected expenses was a factor for all survey respondents, whether they have an HDHP or a traditional plan. Survey respondents had an average household income of $65,000, with 64 percent having a bachelor’s degree or higher. Despite being relatively financial stable, they shows signs of financial insecurity. Just 35 percent of respondents were “very” or “extremely” confident they could pay an unexpected $2,000 expense, whether it was for health care or another type of need.
“Lack of emergency savings is a big reason why people are struggling,” Collins said in his presentation. People who describe themselves as unable to cover an unexpected $2,000 expense of any type were more likely than people who could cover a $2,000 expense to skip a medical test or treatment, not fill a prescription, or not get mental health care due to its cost. The same group is less likely to sign up for an HDHP.
Kathy Blumenfeld, Secretary, Wisconsin Department of Financial Institutions, noted that 54 percent of Wisconsin residents live paycheck to paycheck. Roughly half, or 51 percent, do not have an emergency fund that could cover expenses for at least three months.
For these employees, Blumenfeld said, getting access to HSA funds near the beginning of the year, when health care deductibles are typically paid, could encourage them to sign up for HDHPs. Employees also need scenarios that help them understand how their out-of-pocket share is determined and how to plan ahead for out-of-pocket costs.
“Finding incentives for good financial behavior is going to play a bigger and bigger role,” Blumenfeld added.
Survey results and expert speakers at the event offered some ideas for employers to consider as they seek to help employees understand and use their health benefits.
- For employees with an HSA, fund accounts in advance, so employees can use the HSA for out-of-pocket costs early in the coverage cycle. This will reduce employee stress and will likely encourage more employees to enroll in HDHPs. It would also make it more likely that employees will receive needed care early in the year before they meet their deductible and out-of-pocket limits.
- Offer well-designed, well-targeted employee education on out-of-pocket costs and managing unexpected finances. While only 13 percent of respondents in the ETF study were interested in financial counseling for out-of-pocket costs, employees appear more likely to use self-service tools, such as an online, virtual benefits counselor like the ALEX tool that ETF offers to employees. Ongoing educational sessions and planning tools offered in the workplace may also help employees plan for out-of-pocket costs over the course of the year, not just at open enrollment periods.
- Give employees examples of out-of-pocket costs for common procedures to help employees more accurately envision the actual costs they need to plan for financially. These examples should include routine, preventive care that is typically fully covered, as well as examples that may vary based on if the employee has met their maximum out-of-pocket costs.
- Provide financial planning support to help people understand the importance of emergency savings. The concept of “sidecar” savings accounts is growing traction as a way for employees to have accessible, flexible savings for an emergency so they do not have to raid their HSA or retirement savings for an unexpected expense.
- Aim to make information simple and easy-to-understand, including how out-of-pocket costs are presented and billed.
Like other employers, ETF is interested in guiding employees to better decisions for their health and their finances, according to ETF Secretary Robert J. Conlin. The survey results will guide ETF’s design of employee benefits and to develop new approaches that encourage employees to achieve physical and financial health.