High-deductible plans reduce health insurance costs by skipping copays

There is a significant misunderstanding about copays that has employees and employers mistakenly believing that copays are an important part of their health insurance coverage, says Sequent CEO William F. Hutter.

“Physician copays increase out-of-pocket expenses, and by extension, the cost of insurance to the consumer,” he says. “The copay gets accumulated to nothing.”

The misconception of the role of copays shelters individuals from understanding the true cost of an office visit and the cost of all the procedures that were performed during that visit, he says. The copay is paid to the physician, but it does not count toward an individual’s deducible or out-of-pocket use. That money, then, is unaccounted for in the total cost of a person’s health care.

“And that’s just a person’s primary care person. What if he or she has a specialist?” Hutter says. “All of these copays get lost. So the person might have a chronic condition and need lab work or frequent checkups with specialists, and none of those copays get accumulated to his or her deductible. It’s a hidden cost of insurance that’s part of the design of a plan that was sold as a convenience to the employee, but just adds expenses and obscures the true cost of service.”

Smart Business spoke with Hutter about a health insurance coverage option that forgoes copays and how to introduce it to employees so they understand the benefit.

What is an example of a health insurance plan that doesn’t include copays?

One option without copays that is now being delivered in the market is called a high-deductible health plan. That word, high-deductible, scares people.

A qualified high-deductible program is predicated on a person’s deductible being met before the insurance carrier contributes any expense to the person’s medical claims. The range of the deductible can vary from $1,300 to $3,000, depending on the plan. The difference is that there are no copays, so all medical expenses are paid out of pocket until the deductible is met.

Typically the monthly cost of a high-deductible plan will be lower because it protects the insurance carrier from any first-dollar claims, which means if a person never hits his or her deductible there is never an insurance claim. If the carrier can shield itself from a claim expenses by eliminating office copays, the consumer wins in lower monthly premiums. It also means that the total cost of insurance to the employee, including his or her premiums and any out-of-pocket dollars, will be less than it was under a copay plan.

Given what you’ve just highlighted regarding copays, how should employers use that information?

Companies should consult their broker for plans that count all out-of-pocket dollar expenses by the employee. That protects the employees’ interests because it allows employees to accumulate all health care expenses toward their out-of-pocket or deductible. All insurance carriers have a version of this plan, but the habit of including a copay continues to have its appeal because most people don’t understand how it factors in to overall plan costs.

How can companies introduce high-deductible plans to employees who believe copays save money?

One aspect to highlight when presenting it to employees is that high-deductible plans can be paired with a health savings account. Typically there are enough savings available when switching to a high-deductible plan that the company can, in the first year, seed fund employees’ health savings accounts to offset the initial out-of-pocket expenses. Typically in a transition year, employers seed fund a single individual $500 and a family $1,000 into employee-owned accounts. This helps ease employee concerns that may pop up around paying for office visits. The money stays in the account and will roll over until it’s used.

The important thing is communication. Be sure that everyone understands the architecture and structure of the high-deductible plan.

Companies cannot buy insurance solely based on the cost of the monthly premium. There are other costs to consider. Companies should take a balanced approach and analyze the total plan costs, considering all the factors.

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