Understanding the medical gap

Have you ever received a shocking medical bill for an expense you thought would be covered by your insurance? If so, you’re not alone. And, if not, it’s important to understand why this sometimes happens so that you can be prepared. Many people find themselves in this situation due to a medical coverage gap they may not have been aware of.  But what do we mean when we reference this “gap” and where does it come from? Here are a few points to help you better understand and avoid this medical coverage gap.



What’s an HDHP?

Oftentimes, people are faced with a medical coverage gap because they are enrolled in a “High-Deductible Health Plan” or “HDHP” …which begs the question, “What is a deductible?”. A deductible is the amount you pay on your bill before your insurance kicks in and pays the remaining fee. The deductible amount resets on a yearly basis and once you’ve reached your deductible amount for the year, the HDHP pays the remainder of your medical bills depending on your plan. The trade-off for these plans is that the monthly premiums can be much cheaper.

Currently, the IRS has established the following minimum deductible amounts required to be classified as an HDHP:

• $1,350 per individual
• $2,700 per family

That’s not to say that you need to have an HDHP to experience this gap. While having a deductible of $1,000 might not qualify as an HDHP, it’s still a large bill to pay out of pocket. To look at this in action, let’s say your deductible is $2,000. If you suffer an injury, and your surgery costs $5,000, you are responsible for paying $2,000 of the bill and your insurance covers the remaining $3,000. 

HDHPs and the medical gap

In 2018, 70 percent of large employers offered at least one HDHP to their employees.¹ As HDHPs become more common, so does the issue of policyholders being caught off guard by unexpected medical bills. They may not be aware of their high deductible and that there is a gap between what their healthcare costs and what insurance covers. This commonly occurs if you haven’t paid on any of your yearly deductible and all of a sudden you need a major surgery or have an emergency hospital visit. You may receive a larger bill than you expected because you suddenly are faced with covering the entire deductible.

Bridging the gap

One way to help bridge this gap is with a health savings account (HSA) which is an untaxed account that can only be used for health-related expenses. Another route you can take is purchasing voluntary benefits offered by your employer. Voluntary benefits make payments directly to you (not to the healthcare provider), that can be used to help cover your deductible. A few examples of voluntary benefits that can help are:
 

• Accident insurance: Provides coverage in the event of an injury. Some plans may help with out of pocket medical costs associated with the injury such as the ambulance and follow-up visits.
• Critical Illness insurance: Used to cover healthcare costs for pre-determined conditions, such as a heart attack, stroke or cancer. 
• Disability insurance: Should you be unable to work due to a covered injury or illness, disability insurance helps cover the loss of a paycheck. Policies vary on how long you need to be out of work to receive the benefit. 
• Hospital insurance: Hospital insurance helps cover the costs related to a hospital stay due to illness, injury, or intensive care. 

As enrollment season approaches, do your research on which voluntary benefits make sense for you. To help you make the best decision before and during voluntary enrollment, consider asking these questions.
 
Understanding your medical coverage is important, especially when it can result in an unexpected financial burden. Using this information, do a deeper dive into what your medical plan protects and where it may fall short. Once you identify the gap, you can have a better idea of how to fill it with the protection you need. 

¹ State of Employee Benefits 2018. Jan, 2018