David Rodeck

Are Your Employees Underinsured?

Just because someone has health insurance doesn’t guarantee that they can handle all their medical expenses. In fact, roughly 28 percent of workers with employer-sponsored coverage are underinsured and inadequately protected against health care costs.

Here’s a closer look at this issue and advice for how to assist your employees.

What Does It Mean to Be Underinsured?

Underinsurance is when someone has a health insurance plan but the out-of-pocket costs are high relative to their income. This means that if they need medical care, the deductibles, copays and other fees would be difficult — or impossible — to cover. Underinsured employees could go into medical debt or spend down their savings to pay their out-of-pocket share for their care. Worse, they may even skip necessary treatments because they’re worried about the bill.

How can your employees tell if they face underinsurance? The Commonwealth Fund put together a ballpark calculation to measure the risk. For the survey, a lower-income family was in this category if they spend more than 5 percent of their annual income on health care; higher-income families were included if they spend more than 10 percent.

Take, for example, an employee earning $60,000 a year who has a $7,000 deductible on their health insurance plan. They could be in trouble — the deductible is more than 10 percent of their income. If that employee ever needed serious medical care, the out-of-pocket costs could be difficult to manage.

5 Tips for Becoming Adequately Protected

Your employees need a plan to avoid these financial issues. Here’s are five ways you can help.

  1. Train employees. Go over the concept of underinsurance and use the calculation above to show when an employee might be at risk. Point out the dangers of underinsurance as well: 52 percent of people who are underinsured end up in financial trouble with medical bills, according to the Commonwealth Fund. This is also a good time to review your own small business health insurance with employees and discuss how they can save money on their health care costs by only seeing in-network providers, using generic medications whenever possible and calling the free nursing hotline first before going to the doctor or hospital.
  2. Explain the relationship between premiums and deductibles. If you offer multiple health insurance plans, explain why automatically picking the one with the lowest monthly premium might not always be the most affordable option in the long run. Chances are, that plan will have a higher deductible and other out-of-pocket expenses. Employees may end up paying more by the year’s end with this type of coverage, especially if it puts them in the underinsurance range. They could be safer by paying a higher premium in exchange for fewer out-of-pocket costs, especially if they already have some medical conditions that require frequent care. While you should stop short of giving employees advice during open enrollment, you can help them understand the potential consequences of choosing different options by guiding them to the right questions to ask about each plan.
  3. Offer an HDHP with an HSA. A high-deductible health plan (HDHP) is one where the deductible is at least $1,350 for an individual and $2,700 for a family plan. When a plan’s deductible is this high, it could put enrolled employees in the risky range. Luckily, they have options to protect themselves — employees with an HDHP are eligible to also open a health savings account (HSA). With these accounts, employees can save money from their paychecks and receive a tax deduction for their contributions. They can invest that money over time, and when they spend it on health care, the withdrawals are also tax free. These tax breaks may motivate your employees to put money aside so they have extra cash to manage the any potential costs that would normally put them in debt.
  4. Offer critical illness coverage. Critical illness plans are another way your employees can prepare for the high cost of medical care. These policies are not standalone health insurance, and they don’t directly pay any medical bills. Instead, if an employee develops one of the covered conditions, like cancer, a stroke or a heart attack, the policy will pay them a lump sum amount, which could mean an amount like $50,000 drops into their hands at just the right moment. The employee can use this both for their out-of-pocket expenses and to cover their other bills while they’re recovering and out of work. Related plans include accident insurance and hospital indemnity insurance.
  5. Encourage emergency funds. Vanguard notes that the typical person should have at least three to six months of living expenses saved in an emergency fund. Encourage employees to work toward this goal. If employees pick a plan with a lower premium but higher out-of-pocket costs, suggest that they put their premium savings in the bank. That way they’ll have extra cash on hand in case they do run into unexpectedly high medical bills.

Don’t wait until your employees meet financial trouble by being underinsured. Teach them these concepts and give them tips for saving now and you’ll be doing your part to keep them healthy.

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