The case for high deductible health plans (HDHPs) - Dental Economics

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http://www.dentaleconomics.com/articles/print/volume-106/issue-7/mone...

July 19,2016
ByAndrew D .Tucker,JD ,CPA,CFP & John K.M cG ill,JD ,M BA,CPA

A ndrew D .Tucker,JD ,CPA ,CFP

John K.M cG ill,JD ,M BA ,CPA
W hen it com es to us m aking recom m endations to our clients,few show m ore resistance than
w hen w e recom m end converting to a high deductible health plan (H D H P).The term alone
invokes fears ofspiraling health-care expenses and loom ing nancialcatastrophe in the event
ofa m edicalem ergency.H ow ever,this is a fundam entalm isconception.The key dierence
betw een traditionalhealth insurance and an H D H P has little to do w ith changes in actual
health-care expenses-rather,ithas to do w ith the adjustm ents in how m edicalexpenses are
incurred w hen adopting one ofthe plans.

M aintaining coverage under an H D H P is the m ain requirem entto fund tax-deductible

contributions to a health savings account(H SA).Three characteristics distinguish an H D H P from
a traditionalhealth insurance policy:

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http://www.dentaleconomics.com/articles/print/volume-106/issue-7/mone...

fam ily coverage in 2016.

Itm usthave an out-of-pocketm axim um of$13,100 or less for fam ily coverage in 2016.
Itm ay notprovide "rst-dollar coverage" untilthe deductible is m etfor anything other than
w ellness expenses.This third pointis the biggestsource ofconfusion for m ostdoctors and the
biggestreason m ostdon'tsw itch w hen they should.
First-dollar coverage m eans thatinsurance coverage is provided w ithoutm eeting the
deductible.This is the type ofhealth insurance m ostdoctors are fam iliar w ith,w ith copays for
both doctor visits and prescriptions.H D H Ps are notperm itted to provide rst-dollar coverage.
As a result,o ce visits (w ith the exception ofannualw ellness physicals)and m ostprescriptions
cannotbe subjectto a copay prior to the deductible.

So how could an insurance policy w ith no copay be better than a policy w ith copays? Because
health-care and health insurance expenses have hem orrhaged in recentyears,and the
prem ium s on copay policies are increasing dram atically.As policies w ith robustbenets begin
to be phased out,the prem ium s for new copay policies replacing those older copay policies are
dram atically m ore expensive.
Com pare this w ith the H D H P plan.W hile the deductible is appreciably higher than the
traditionallow deductible policy,the tradeo is thatprem ium s are often signicantly low er than
low deductible counterparts.As a reference point,a doctor recently experienced a prem ium
savings of$270 per m onth for a fam ily offour.W hile this levelofsaving is notguaranteed,itis
notuncom m on for those shifting aw ay from ultra-low deductibles ($500 to $700)com pared to
the currentexchange deductibles ($4,000 to $12,000).
In addition to the cheaper prem ium s,H D H Ps also allow doctors to fund tax-deductible
contributions into an H SA.Since the deduction is notavailable w ithoutcoverage under an
H D H P,the tax savings m ustbe considered in determ ining w hether sw itching to this type of
policy is costeective.The sam e doctor m entioned above has a com bined 45.6% top m arginal
tax bracket.A contribution of$6,750 into his fam ily's H SA (the m axim um in 2016)w illresultin
$3,078 in tax savings thatw ould have been unattainable w ithoutthe H D H P.

Consider the exam ple above.The doctor w illsave $3,240 annually ($270 per m onth)in health
i r
r i
.W h
dj i g f r i
d d ibiiy f h r i
,h d
r

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The case for high deductible health plans (HDHPs) - Dental Economics

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http://www.dentaleconomics.com/articles/print/volume-106/issue-7/mone...

incom e taxes w ith an H SA contribution by $3,078 per year.This results in a totalsavings of

$4,841 per year.This m eans thatthe doctor has to incur $4,841 ofm edicalexpenses before
breaking even w ith a copay policy.Com bined w ith the factthatthe patientpays a reduced
netw ork PPO fee for the visitthataccum ulates tow ard his deductible (thatacts like a larger
"copay" since the patientis paying a reduced fee for treatm ent),itbecom es clear thatthis
doctor is better o in the H D H P.
This isn'ta one-size-ts-allsolution to health-care issues.H ow ever,ifyou have avoided high
deductible health plans due to concerns aboutthe expense,take a look atthe num bers,
calculate the savings,and determ ine ifan H D H P is rightfor you.

A ndrew D .Tucker,JD ,CPA ,CFP,and John K.M cG ill,JD ,M BA ,CPA ,provide tax and business
planning exclusively for the dentalprofession.M r.M cG illpublishes the M cG illAdvisory
new sletter through John K.M cG ill& Com pany Inc.Both are m em bers ofthe M cG ill& H illG roup
LLC,the one-stop resource for tax and business planning,practice transitions,legaladvice,
retirem entplan adm inistration,and CPA and investm entadvisory services.Visit
mcgillhillgroup.com.

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