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Some Individual Policies Offer A Way To Shrink Deductibles

May 21, 2013

There is no free lunch. As more people buy high-deductible health plans, they're discovering that while premiums for such plans are more affordable, the trade-off can be high out-of-pocket costs before coverage kicks in.

However, some plans sold on the individual market offer a way for healthy people to shrink their deductibles. Under these so-called deductible-credit plans, the deductible diminishes year by year for policyholders who don't spend a lot on health care.

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Supporters say these programs reward good health by helping customers reduce their costs. But consumer advocates say the programs may discriminate against sick people and run afoul of the Affordable Care Act.

On the individual market, high deductibles are commonplace. The average deductible for an individual policy was $3,079 in 2012, a 56 percent increase over the 2007 average, according to an analysis of policies purchased through eHealthInsurance.com.

In a plan with a deductible credit, if an enrollee's health claims don't exceed the deductible one year, the deductible drops by 20 percent the following year, then by the same amount the following year, until the deductible may eventually be reduced by half, the maximum reduction allowed.

So if someone has a plan with a $5,000 deductible, for example, the deductible could be reduced to $4,000 after the first year. The following year, it could drop another $1,000; after three years, it could be cut to $2,500. If at that point the policyholder had, say, a car accident with claims totaling $10,000, the person would receive credit for the $2,500 reduction and owe less out of pocket. The following year, the deductible would reset to the original $5,000 and the process would start all over again.

Deductible-credit health plans are available in 26 states through UnitedHealthcare's Golden Rule Insurance Co., according to Ellen Laden, a Golden Rule spokeswoman. 

"Insurance companies want to keep healthy people on the books, and this is an incentive for them [to stay]," says Adam Hyers, president of Hyers & Associates in Columbus, Ohio.  Hyers estimates that nearly half of his health insurance clients have deductible-credit plans.

These plans generally don't carry a higher premium than similar plans without that feature, according to Carrie McLean, a senior manager of customer care at eHealthInsurance.com. "We didn’t see an increase in premiums" for this type of plan, she says.

Most people don't meet their deductible, of course. According to an analysis by eHealthInsurance.com of one large insurer’s 2012 claims, just under 11 percent of people with a $2,500 deductible met the deductible for that year. For those with a $5,000 deductible plan, the figure dropped to just under 4 percent. Only 3 percent of people with a $7,500 deductible had that much in claims, and at the $10,000 deductible level the figure was just over 2 percent.

But some health-policy experts say that these plans won't pass muster under the health law's new requirements. Starting in January, plans will no longer be able to turn applicants down for coverage because of preexisting medical conditions. Nor will insurers selling new individual and small-group policies be able to charge healthy people less than sick ones

"The Affordable Care Act prohibits discrimination on the basis of health status, and that's defined to include claims experience," says Timothy Jost, a law professor at Washington and Lee University. "[These programs are] obviously an attempt at favorable selection."

Others say they see a potential problem because under the law, coverage must be renewable.

"Anybody can sign up for it, but when it comes time to renew, the only people who are eligible for this program are healthy people who don't use enough health-care services to meet their deductible," says Sabrina Corlette, a research professor at Georgetown University's Center on Health Insurance Reforms.

Asked about such concerns, Laden said in a statement that the program is similar to others on the marketplace today. "We are currently reviewing the Affordable Care Act and its impact on the deductible credit feature to ensure that our products and practices remain in compliance with it and all other applicable laws."

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