Deductibles Causing Employees to be Functionally Uninsured

Market Signal

A recent BenefitsPRO report highlights a troubling measure of healthcare affordability in the United States: four in 10 Americans have skipped or delayed medical care because of cost.

The issue extends beyond whether someone technically has health insurance. Rising premiums, deductibles, prescription costs, and other out-of-pocket expenses are increasingly affecting whether individuals can actually afford to use the coverage they have.

For employer-sponsored plans, this distinction matters.

An employee can carry an insurance card and still be functionally underinsured if a $3,000, $5,000, or $7,000 deductible makes necessary care financially inaccessible. At that point, the health plan may be providing protection against catastrophic financial loss without consistently providing affordable access to routine healthcare.

That is an increasingly difficult outcome for employers to accept as both the cost of sponsoring the plan and the employee's financial exposure continue to rise.

Why This Matters

Deductibles are often treated as an unavoidable feature of modern health insurance. As healthcare costs increase, employers increase deductibles, coinsurance, or employee contributions to offset some of that inflation.

But cost-sharing does not reduce the underlying price of healthcare. It simply reallocates a portion of that expense from the employer to the employee.

Every financial component of an employer health plan, whether premium, deductible, coinsurance, or out-of-pocket maximum, ultimately reflects the broader economics of the plan.

Those economics are driven primarily by two functions: the price the plan pays for healthcare and the cost of transferring catastrophic claim risk to an insurer.

When either function becomes inefficient, someone has to absorb the additional expense. Increasingly, that burden is being divided between employers through higher plan costs and employees through greater cost-sharing.

The result can be an expensive health plan that still feels unaffordable to the people it was designed to serve.

HPX Perspective

We believe midsize employers need to evaluate health plan economics through these two distinct functions.

The first is healthcare purchasing.

Today's healthcare market contains an increasingly broad range of prices for the same or comparable care. Prescription drugs, specialty therapies, infusion treatments, hospital procedures, imaging, and other services may carry dramatically different economics depending on where and how they are purchased.

Yet many conventional health plans remain built around static contracts that assign a single negotiated pricing pathway to a given service or medication. That can prevent the plan from accessing alternative sourcing arrangements and lower available price points elsewhere in the healthcare ecosystem.

The second function is risk transfer.

An employer with several hundred members has limited statistical credibility when catastrophic claims are underwritten against its population alone. A small number of large claims can materially alter the group's risk profile and create significant insurance volatility from one year to the next.

We believe employers with fewer than 1,000 members should therefore consider structures that can scale the insurance purchase beyond the standalone employer population through appropriately structured multi-employer risk pools, captives, or similar arrangements.

The objective is straightforward: purchase healthcare across a more competitive pricing spectrum while purchasing insurance across a larger and more credible risk pool.

When both sides improve, the economics of the entire plan can change.

Looking Ahead

Employers should not accept higher deductibles as the inevitable solution to higher healthcare costs.

There is an important difference between reducing benefits and reducing the cost of delivering those benefits.

If an employer can materially improve the prices paid for healthcare while simultaneously improving the efficiency and predictability of catastrophic risk transfer, those savings can be used to redesign the employee experience rather than simply offset another year of inflation.

That creates the possibility of lower deductibles, lower out-of-pocket exposure, and, in the right circumstances, eliminating meaningful cost-sharing altogether.

The goal should not simply be to provide employees with an insurance card.

It should be to build a health plan they can actually afford to use.