Coverage Gaps and Financial Stress of Unexpected Medical Bills

Benefit Trends October 25, 2021

The cost of healthcare is a major concern for employers and employees alike. And for good reason: employee benefits account for about one-third of employers’ total compensation costs.[1] This is why employers focus on cost control and on strategic benefit planning to ensure maximum return on investment. Coverage gaps and unexpected medical bills can cause serious financial stress for employees.

There is another side to consider, though: coverage gaps on the employee side. In fact, recent surveys reveal that two-thirds of Americans worry about their ability to afford unexpected medical bills due to coverage gaps[2] These unexpected medical bills are a greater source of concern than household expenses and other routine costs.[3] While it’s easy to assume that these are the burdens of people who are uninsured or buy their own coverage, this is not the case. Individuals and families with employer-sponsored insurance report facing financial stress when it comes to unexpected medical bills as a result of coverage gaps—especially those enrolled in high deductible health plans (HDHPs).[4] Here is a closer look at unexpected medical bills, recent research findings and the widening gap between insured coverage and out-of-pocket spending on healthcare expenses.

What is a “surprise” or unexpected medical bill?

An unexpected medical bill is any bill a patient receives for services, that is higher than expected. Employers that shift to HDHPs, increase the share of healthcare expenses that employees are responsible for. In addition, shrinking primary plan coverage adversely results in growing coverage gaps, which can result in higher out-of-network costs and Rx formulary costs.

Deductibles are on the rise, too. In fact, between 2008 and 2018, the average general annual deductible rose 212%, according to an analysis.[5] Premiums have also surged since 2008, growing twice as fast as workers’ earnings and three times the rate of inflation.[6] As insured coverage shrinks and coverage gaps increase, it’s clear that employees are spending more than ever on their healthcare expenses.

This increased out-of-pocket healthcare spending causes financial strain. According to surveys[7]:

  • 49% of insured adults worry about being able to afford deductibles
  • 45% worry about paying for prescription drug costs
  • 40% are concerned about their ability to afford insurance premiums

Coverage gaps force difficult choices

The stress caused by unexpected medical bills and financial hardship forces many insured individuals to make difficult choices when it comes to their medical care. Up to half of US adults report that they or a family member delayed or skipped healthcare or dental care in the last year because of the cost.[8] These choices to forgo what are often routine healthcare visits such as annual checkups, dental cleanings and lab work, can end up exacerbating patients’ medical conditions- a decision that ironically may lead to more costly treatment in the future. Rising prescription drug costs are also a source of strain: 29 percent of adults report leaving a prescription unfulfilled, or not taking a medication as prescribed within the last year because of the associated costs.[9]

Even relatively small unexpected medical bills strain some individuals. Nearly half of respondents acknowledge that they would not be immediately able to afford an unexpected medical bill of $500.[10] And, employees’ concerns are founded. One-third of insured adults have received an unexpected medical bill within the last two years.[11] Often, these bills result from coverage gaps or less coverage than expected for routine care from a doctor, hospital or lab.

The connection between insured coverage, engagement and loyalty

Benefits matter, especially in a time of economic uncertainty, when more employees than ever are facing financial strain. Research has found that 80% of employees would prefer a new benefit to a pay raise.[12] It also pays to keep employees happy. Employee satisfaction leads to lower rates of voluntary turnover, which already costs US employers more than $536 billion annually.[13]

Voluntary turnover isn’t the only threat to the bottom line. Stress is, too. And financial strain counts as stress, which ultimately distracts from employee engagement and decreases productivity.

Boosting insured coverage, and shrinking coverage gaps

Employers must be mindful of the benefit budget, of course—especially in a time of uncertainty, when it is difficult to know what lies ahead. Given the financial realities of healthcare coverage, though, and the connection to the bottom line, they can’t afford to ignore coverage gaps.

Many employers have turned to Health Savings Accounts (HSAs) paired with HDHPs, but HSA funds must accumulate before they can be used, which can create timing issues that don’t solve financial strain. In addition, over half of employees with HSAs lack sufficient savings in these accounts to cover their deductibles.[14]

Employers can address coverage gaps and the problems they create through supplemental health insurance plans. These plans allow employers to reallocate their HSA contributions (or contributions to other employer-funded plans) into more valuable insured coverage to help span coverage gaps, reduce employees’ financial strain and decrease the financial risk they face.

Unlike the traditional one-size-fits-all approach, these supplemental health insurance plans can be offered to select employees as defined by the employer or to all employees. ArmadaCare’s ComplaMed and BeneBoost are two cost-effective health insurance solutions designed for broader employee populations that can help employers close some of the coverage gaps in the primary plan and provide more meaningful insured coverage for employees.

Learn more about our wide range of uncommon supplemental health insurance plans, which can help employers and employees reduce the financial strain caused by unexpected medical bills and coverage gaps.

*This is not local, state or federal tax advice as each person and company is unique. It is recommended that you seek the independent counsel of a professional tax adviser.

[1] Bureau of Labor Statistics, 2019

[2] Kaiser Family Foundation, 2020

[3] KFF

[4] Kaiser Family Foundation, 2020

[5] Kaiser Family Foundation, 2018

[6] KFF

[7] KFF

[8] KFF

[9] KFF

[10] KFF

[11] KFF

[12] SCORE, 2018

[13] Work Institute, 2018

[14] KFF

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