The concept was designed to benefit working individuals and families. Unfortunately for most, it has not worked as expected. For many Americans in their 40s and 65s, the post-Covid economy is likely to make things worse.

High Deductible Health Plans (HDHP) were introduced in 2004. The idea was a plan that would lower the cost of health insurance coverage. HDHPs would especially benefit the millions of workers who are offered occupational health plan coverage. The plans would especially benefit younger people who generally have little or no health-related costs.

To sweeten the deal, the government approved tax-advantaged Health Savings Accounts (HSAs). Individuals would contribute dollars to their individual HSA before taxes. When it is withdrawn for medical expenses, the money is not taxed.

So what is the problem? And why is a post-Covid economy likely to make things worse for many working-age Americans?

Since their introduction, acceptance of high deductible health plans has increased dramatically. Among adults ages 16-64 with employment-based health coverage, the percentage of enrolled in a traditional health plan decreased from 85% to 57% according to the US Department of Health and Human Services. Meanwhile, 19% have a HDHP along with an HSA. One in four (24.5%) has a high deductible plan without the tax-advantaged savings benefit of an HSA.

Without a doubt, those with few or no medical problems during each year benefit from the money saved by selecting a high deductible plan.

The same is not true for many of those with more serious medical needs. Many of us are in the midst of a diagnosis of a major financial crisis. Consider that one American adult is diagnosed with cancer every 21 seconds and another has a heart attack every 40 seconds. Add to that accidents, pregnancies, diabetes, and now of course the Covid virus.

People are likely to be affected in three ways when they experience serious health problems. First, they are likely to meet their health plan deductible. Second, they are likely to be faced with meeting out-of-pocket maximums. Finally, they will likely find that their insurance plan will not cover all health-related costs (including prescription drugs).

Here are some hard facts. For individuals covered by an HSA-qualified HDHP plan, the ‘average’ annual deductible is $ 2,476 for individual coverage and $ 4,673 for family coverage. The ‘average’ out-of-pocket maximum is $ 4,492 per covered plan participant. The word average is placed in quotes because the IRS defines a high deductible health plan as any plan in which total yearly out-of-pocket expenses (including deductibles, copays, and coinsurance) cannot be more than $ 6,900 for an individual. or $ 13,800 for a family.

The plan would work when people contribute at least that amount to their Health Savings Plan. Unfortunately, that is not the case.

While the maximum contribution amounts for 2020 are $ 3,550 for individuals and $ 7,100 for families, few contribute the maximum. For those with accounts open for a year, the average individual contribution to the HSA was $ 1,166, according to the Employee Benefits Research Institute. In 2018, the average HSA balance was $ 2,803.

A low-cost supplement to your health savings account

Since most working-age adults between the ages of 40 and 65 are diagnosed with a serious financial emergency, an alternative way of planning is warranted.

Today, about 5 million Americans have purchased critical illness insurance according to the 2020 industry analysis by the American Association for Critical Illness Insurance (AACII). Approximately 1.5 million people purchase coverage annually, most through coverage offered by their employer.

A modest amount of coverage can be an affordable way to secure sufficient funds beyond your health savings account. Today’s best ci insurance plans offer comprehensive insurance coverage for serious illness and cancer only. The latter pays a lump sum cash benefit not only for a cancer diagnosis but also for conditions such as heart attack, stroke, and organ transplants.

For a 45-year-old man who does not use tobacco products, a $ 10,000 cancer-only benefit will cost about $ 50 to $ 60 a year. Women tend to pay more (about $ 85 per year) due to the increased risk of breast cancer.

Most critical illness insurance purchases tend to be modest. In 2020, AACII reported that the average number of policies purchased through employers ranged from $ 12,961 to $ 15,408. While the case can always be made for more insurance, this modest planning approach is affordable and robust.

After tough financial times, personal bankruptcies skyrocket. In 2006, 597,965 Americans filed for personal bankruptcy. By 2010, the number soared to more than 1.5 million.

A Harvard University study found that two-thirds of bankruptcies were related to medical and health-related bills. Most of those who filed for bankruptcy were middle class and had health insurance. Hospital bills were the largest single expense for about half of all medical bankrupt families; prescription drugs were the largest expense for 18.6 percent.

A modest insurance policy just for cancer or critical illness makes tremendous financial sense for those with a high-deductible health plan. This is especially true for people in their 40s, 50s, and 60s prior to Medicare eligibility. For a few dollars a week, you can be sure that you can focus on your recovery instead of worrying about a bunch of unpaid bills.

According to the Association’s Cost Calculator, a 45-year-old woman would pay about $ 82 a year for a cancer insurance policy if she does not use tobacco. A woman of the same age would pay about $ 108 a year if she used tobacco products. Many companies offer employer critical illness insurance coverage, and policy comparison can help you get better coverage for less money.