Do high deductible health insurance plans make sense for pregnancy?
High-deductible health plans (HDHP) may help parents save money on premiums, but introduce the possibility of greater out-of-pocket costs.
The option works best for young, vigorous adults who do not expect to utilize doctors and hospitals frequently. They save on premiums, and come out way ahead provided “nothing happens.”
However, when having a baby, you are expecting “something to happen.” Break down the issues into three parts, and discover what option works best for you.
- The risk-reward math of lower premiums vs leftover medical bills
- How supplemental coverage and tax benefits tip the scales
- Important definitions that determine coverage levels
Math behind High Deductible Health Plans for Maternity
The math behind high-deductible health insurance for maternity care involves comparing risk versus reward.
- Reward – You will definitely save money over the course of 12 months through lower premiums.
- Risk – You could possibly incur much higher unreimbursed medical expenses if your baby is born with a serious medical condition.
Lower Monthly Premiums
Lower monthly premiums represent the reward side advantage of high deductible health insurance for maternity care math equation. You can save a lot of money on your premium costs. The key question is do you save enough to overcome the almost certain increase in out-of-pocket costs.
Most HDHP options are bronze plans as defined under Obamacare – they reimburse approximately 60% of expected medical costs. The member pays the remaining 40%. Surf over to your state exchange as we did to get a price comparison of a platinum level plan – those reimbursing approximately 90% of expected medical costs.
We found these costs in early 2016.
- Average Bronze Husband/Wife – $400 monthly
- Average Platinum Husband/Wife – $1,100 monthly
A $700 monthly difference equates to an annual saving of $8,400 – very interesting. Remember this figure when we compare these certain savings to the uncertain additional exposure.
The cost of maternity insurance coverage varies widely. Keep this in mind during the remainder of this analysis.
- Group plans feature employer contributions and pretax payroll deductions.
- Low-income families qualify for premium and cost-sharing subsidies on individual plans.
Maximum Out of Pocket
The high deductible health insurance maximum out-of-pocket amounts (MOOP), defines the outer bounds of the risk side of the maternity care math equation. The maximums limit what the parents must pay for themselves. The equation outputs a favorable result 87% of the time (when the newborn is healthy), and an unfavorable results 13% of the time (when the newborn has a serious medical condition).
MOOP for Healthy Baby
The HDHP maximum out-of-pocket amount for an individual is $6,600 in 2016. When your baby is perfectly healthy (87% of the time), the MOOP makes the HDHP the best alternative. The reason is simple. The individual MOOP engages only with mom’s care and limits exposure. The expenses for a healthy infant are insignificant.
- Certain premium savings – $8,400 reward
- Uncertain medical charges – $6,600 risk
Mom & Baby Healthy
As you see, the reward outweighs the risks when the baby is healthy. Furthermore, your actual expenses may be significantly lower. Use the national average costs for normal labor and delivery to project your out-of-pocket expenditures. Base the estimate on your plans cost-sharing features (deductibles, copays, and coinsurance). Even with a hefty deductible, you still may not reach the MOOP.
- Vaginal Delivery – $12,250
- C-section Delivery – $16,750
Complications for Mom
Now consider what happens if mom experiences complications. Approximately 25% of women experience one or more complications of pregnancy such as preterm labor, preeclampsia, hemorrhaging, and other conditions. The medical bills can add up quickly. However, your financial exposure is never more than $6,600!
MOOP for Unhealthy Baby
The HDHP maximum out-of-pocket amount for a family is $13,200 in 2016. The family MOOP often engages when the baby requires specialized care because of an illness or injury (13% of the time). Now you have two people utilizing expensive medical services instead of just one.
Approximately 13% of newborns deliver preterm, with low birth weight, or with a serious illness or injury. They often need specialized care in the hospital or neonatal care unit (NICU). When your infant requires specialized care, the household is then responsible for an extra set of medical bills.
Twins and triplets frequently deliver preterm and often begin life with serious medical issues. Each set of twins comes with two sets of medical bills.
The family MOOP limits your financial exposure to an incremental $6,600. The average cost for preemies hospitalized in a NICU is $3,000 per day. Therefore, you can reach the cap very quickly. However, now the math of your plan choice does not look as appealing.
- Certain premium savings – $8,400
- Uncertain medical expenses – $13,200 maximum
Supplemental Gap Policies
Supplemental health insurance policies fill the gap and make the risk-reward equation for high deductible health plans for maternity work better. They improve the math when both mom and baby are perfectly healthy. They kick into overdrive when either one or both experiences an illness or injury.
Divert some of the premium savings towards two programs that provide almost certain first dollar benefits. The one drawback is that you must purchase supplemental gap insurance prior to conception.
These two policies will exclude any preexisting pregnancy from coverage.
- Short-term disability replaces a portion of mom’s income during her maternity leave. Worksite policies cover her recovery from normal labor and delivery. All policies will cover maternity leave due to complications.
- Hospital indemnity insurance covers mom’s hospitalization for normal labor and delivery. It often will pay an additional benefit when her infant needs specialized care in the neonatal intensive care unit (NICU).
Tax Benefits of High Deductible Plans during Pregnancy
The possible tax benefits associated with high deductible health plans during pregnancy also make the math equation work better. While you may face higher out-of-pocket costs for prenatal care, labor, and delivery, and NICU confinement – the tax savings can offset these possible exposures.
You will find different levels of tax benefits when you combine your HDHP with a health savings account, health reimbursement account, or flexible spending account.
With Health Savings Account (HSA)
A health savings account is a tax-favored method of saving money for future pregnancy-related medical expenses. You must have a high-deductible health plan in order to utilize an HSA. You make pre-tax payroll contributions into the account, which reduces the amount you pay in federal and state income taxes, and FICA taxes.
These are the most important limits as of 2016. Compare the contribution limits to the minimum deductible and maximum out-of-pocket (MOOP) costs for 2016. As you can see, parents need to begin making maximum HSA contributions one year in advance of conception in order to take full advantage of the tax savings features.
|Self + 1||$6,750||$2,600||$13,100|
There is no need to compare HSA versus PPO or other types of plan designs. You can have both at the same time. For example, if your preferred provider plan (PPO) meets the deductible and MOOP requirements, it can be an HSA. The same holds true for point of service plans (POS), and health maintenance organizations (HMO).
With Flexible Spending Account (FSA)
A high deductible health plan with a flexible spending account (FSA) can reduce exposure to predictable pregnancy-related medical expenses. An FSA allows employees to make pre-tax payroll contributions, and use the funds to pay for unreimbursed medical bills.
An FSA is an appropriate tax strategy for foreseeable medical expenses. Whatever you do not spend at the end of each plan year reverts to the employer. The IRS dictates this under the “use it or lose it rule.”
Fortunately, women having a baby have many probable medical expenses. These charges include prenatal care, hospital admission charges, labor and delivery fees, etc. Do not elect to contribute money for what might happen, such as complications, or a long-term confinement of your infant in the NICU.
Unfortunately, the annual contribution limits mean that an HDHP with an FSA can leave a big gap. The projection per-employee limit in 2017 is $2,600. You may have to fund any additional unreimbursed expenses using after-tax dollars – which is more costly.
With Health Reimbursement Account (HRA)
A high deductible health plan with a health reimbursement account (HRA) is always an employer-sponsored option. Only an employer can contribute funds into the HRA.
The HRA funds provide first dollar benefits. Therefore, an HRA is one of the best tax-favored HDHP options a pregnant woman can choose. The reasons are four-fold.
- She can utilize pre-tax payroll contributions when paying her share of the premiums.
- She spends the employer’s funds when reimbursing herself.
- The employer money used to fund the HRA does not count as taxable income to her.
- She is highly likely to utilize all the funding in a single year, which she might otherwise forfeit if she left the company.
Key Definitions of High Deductible Plans for Pregnancy
People are frequently confused by important terms used by high-deductible health plans. During mom’s pregnancy, parents often need a clear definition and explanation of how these terms apply to their situation. Find explanations of the most commonly encountered terms here.
A consumer-driven health plan is just another name for a policy design that holds the patient responsible for a significant portion of medical expenses. The theory is that the higher cost-share will drive you, the consumer to make different choices about your utilization of medical care. You might shop around, or decide not to see the doctor.
While pregnant, a wise consumer-driven choice is to see the doctor whenever needed. With the inevitable expenses of your labor and delivery in the hospital, you are likely to hit your MOOP anyway.
An HDHP individual deductible always applies to the mother. Pregnant women need medical care, especially when it is time to give birth. You will be responsible for 100% of the allowed charges until you reach the stated limit.
Medical expenses above the individual limit are subject to copayments and coinsurance. These additional cost-sharing features continue until you reach the maximum out-of-pocket amount.
Aggregate Family Deductible
In very rare cases, an HDHP aggregate family deductible could increase exposure to couples with healthy pregnancy experiences. Under the aggregate family limit, the plan does not pay any benefits for any individual until medical costs reach the specified amount.
With the average cost of normal delivery above $10,000, the aggregate version should not be an issue for most plans. Most plans will begin paying benefits for every family member as soon as mom delivers her baby.
Embedded Family Deductible
An HDHP embedded family deductible comes into play during pregnancy more frequently. With the embedded family version, the plan begins paying benefits after any family member meets his or her individual deductible.
This means that the plan could begin paying benefits for mom much sooner, as she only has to meet her individual limit. The same holds true for baby.
Preventive care is one of the best aspects of a high deductible health plan for maternity-related conditions. By law, insurance companies must cover preventive care services without a deductible, copayment, coinsurance, or other cost-sharing feature.
Here are several common pregnancy-related preventive services your plan must cover 100%.
- Periodic health evaluations
- Routine prenatal visits and well-child care
- Tobacco cessation programs
- Obesity weight loss programs
In conclusion, high deductible health plans present risks and rewards for pregnant women. You will definitely save money upfront from lower premiums but could increase your exposure to larger unreimbursed expenses. The maximum out-of-pocket amounts, supplemental gap policies, and tax benefits offset many of these risks.
- Average cost of normal delivery
- Average cost of NICU stay
- Health reimbursement accounts
- Health savings accounts
- Preventive care
- Embedded deductibles
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