Deductibles have become very common in health care plan design as employers aim to share costs with employees and attempt to mitigate double-digit health care inflation. By using deductibles and coinsurance in the plan design, employers can try and limit utilization.
A deductible is an amount of eligible health care expenses a covered person must incur before any reimbursement is payable on eligible expenses in excess of the deductible. Deductibles come in the following forms:
- Calendar year deductible
- Per prescription deductible
The calendar year deductible must be met on a calendar year basis from January 1 to December 31 of each year. Per prescription deductibles apply to pay-direct drug plan only. A per prescription deductible is met each time a prescription drug is purchased.
Deductibles are also subject to several provisions such as:
- Family limits
- Three-month carry-over provision
Plans with deductibles usually apply family limits, requiring two to three family members to satisfy the deductible. Typically plans include deductibles of $25 per person, but limiting the deductible to $50 per family. Some plans have tiered deductibles, split as follows: per single employee, per couple, and per family. The difference is the deductible per couple is for employees with only one dependent and the family deductible is for employees with two or more dependents.
Some plans include a three-month carry over provision for calendar year deductibles. This provision provides that eligible expenses incurred in the last three months of the calendar year to be carried forward to the following year and used to satisfy the deductible for the following year.
Flat deductibles remain unchanged each year until there is a request from the employer to change the deductible. The employer needs to notify the insurance company when such a decision is made so an amendment can be made to the insurance contract. Few employers change their plan deductibles on annual basis which leads to the eroding impact of deductibles on plan utilization because deductibles have not kept pace with healthcare inflation over time.
Because of deductible erosion, the landscape has changed significantly to include deductibles that include a portion of the cost that changes with inflation. One common change is to use the drug dispensing fee portion of the covered drug as a per prescription deductible. Under this arrangement, when a covered employee pays for a drug at the pharmacy, the dispensing fee portion is paid by the employee.
Coinsurance is defined as the percentage of eligible expenses above the deductible that is eligible for reimbursement under the plan. The coinsurance percentage of a typical Canadian drug plan is in the 80% to 100% range.
Typically, health plans have different coinsurance based on each benefit within the health plan (such as $100% coverage for hospital and out-of-country, and 80% on all other health benefits). Some health plans use a split level of coinsurance covering, for example 80% until a certain out of pocket limit is reached, and then paying 100% of all eligible expenses.