3 ways to overcome high barriers set by high-deductibles

During open enrollment, most employees probably aren’t thinking further out than the next 12 months when deciding which health plan to choose. In fact, some employees may not even be thinking clearly about the current 12 months. A recent paper from Voya and SAAVI Financial notes that confusion and inertia lead employees to select suboptimal health plans, reducing their ability to save effectively for retirement.

Related: HDHPs have limited effect on spending growth, NBER study finds

Using data from the U.S. Agency for Healthcare Research and Quality’s Medical Expenditure Panel Survey, SAVVI found that in 2018, almost 60% of employees had claims under $2,000, making the premium savings of a high-deductible health plan more compelling than a preferred provider organization.

Across all age groups, the majority of employees would have saved money choosing an HDHP over a PPO. Here’s how the annual savings break down:

• Almost 70% of the oldest workers, those between ages 55 and 64, would have spent less with an HDHP, saving an average $326.
• Slightly fewer 45- to 54-year-olds would have saved money, at 67%. They would have saved more than their older counterparts, with average savings of $395.
• The Gen X-millennial cuspers saved significantly more, with an average $481 across 78% of the 35- to 44-year-old demographic.
• The savings are greatest for younger workers. Voya found 84% of people between ages 25 and 34 would have spent less with an HDHP, with average savings reaching $566.

“Compounded over time, if this amount were to be saved for retirement, it has the potential to have a significant impact,” Voya noted. For example, a 40-year-old who invests their premium savings in a pre-tax account can save almost $28,000 with that additional contribution.

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Voya recommended three steps to help employees overcome barriers to choosing the more optimal plan for them and their families:

• Avoid naming the plan “high-deductible.” Voya found employees were almost twice as likely to choose a PPO over another plan that had “high-deductible” in the name. A 2020 study by Voya asked employees to choose between identical plans with different premiums and deductibles. They consistently chose the suboptimal plan.
• Encourage employees to review changing needs every year. Regardless of what type of plan they chose, most employees stick with the same one they had last year, including 94% of people covered by a PPO and 80% of those with an HDHP. Decision support tools can help them envision how their decision will affect them down the road.
• Illustrate the long-term impact of current savings. It’s not enough to show employees how much they could save if they don’t put those savings to good use. Of course, one of the significant benefits of an HDHP is the ability to use an HSA to save and invest. Showing participants how investing the difference in premiums between an HDHP and a PPO can impact other long-term goals can also help the 63% of participants who simply pick the plan with the lowest deductible without thinking about how it affects their goals.

Related: How to add 37% to your tax-free retirement contributions this year