When considering different types of health insurance policies for your organization, you may have wondered whether it’s better to offer a low deductible health plan (LDHP) or a high deductible health plan (HDHP). While HDHPs have higher deductibles than LDHPs, there are benefits to taking on the risk.
HDHPs can offer significant savings for employers and employees, especially if you supplement them. According to the 2025 KFF Employer Health Benefits Survey, 26% of small employers and 35% of large employers offered their employees an HDHP with added savings options, such as a health savings account (HSA) or a health reimbursement arrangement (HRA)1. Subsequently, 33% of employees enrolled in an HDHP with a savings option.
In the article below, we’ll cover the pros and cons of HDHPs and how you can maximize this type of health plan to create an even better health benefits package for your employees.
In this blog post, you’ll learn:
- What a high deductible health plan (HDHP) is, how it works, and the IRS requirements it must meet in 2026.
- The advantages and disadvantages of HDHPs, including how they compare to low deductible plans in terms of premiums and out-of-pocket medical costs.
- How to supplement an HDHP with other health benefits and alternative solutions to employer-sponsored health plans, such as a stand-alone HRA.
As the name implies, an HDHP is a health insurance plan with a high annual deductible that individuals must meet before their insurer starts covering their eligible medical expenses. Because of its higher deductible, an HDHP typically has lower monthly premiums than an LDHP.
A health plan must meet specific criteria for the government to consider it an HDHP.
The Internal Revenue Service currently defines an HDHP in 2026 as2:
According to the Affordable Care Act (ACA), all HDHPs purchased on a public exchange, such as the federal Health Insurance Marketplace or a state-based exchange, must cover certain preventive services at an in-network provider, regardless of how much an individual has paid toward their annual deductible. Service providers may charge your employees for preventive services if they receive out-of-network care or have a grandfathered health plan.
The preventive care services that HDHPs may cover include:
HDHPs can be great options for those who want to save money while ensuring they have coverage for unforeseen medical emergencies and health events. Employees may only be on the hook for premiums and the occasional medical expense.
If you already offer a group health plan with a low deductible, switching to an HDHP is a great way to mitigate year-over-year increases in health insurance premiums. Higher annual deductibles mean lower premiums for small businesses seeking ways to save on medical costs.
Enrollees in HDHPs have the following advantages:
If you have a generally healthy workforce with many young, single employees, an HDHP may be the best group plan option for your company. However, these benefits apply only if your organization meets the requirements for a group health plan, such as the insurer’s participation rate.
HDHPs offer a significant opportunity for small businesses to save money due to their potential for lower premiums. Problems may arise, however, when employees incur frequent or expensive medical expenses and must pay more out of pocket before their insurance provider begins covering the cost of care.
According to KFF, about 36% of U.S. adults said they put off or skipped medical care in the past year because of cost3. Because HDPHs require individuals to pay for more medical expenses before they meet their deductible, some people with an HDHP might not get necessary medical help because they can’t afford it.
The following are potential disadvantages of HDHPs:
Because of these concerns, HDHPs typically don’t provide enough coverage for those with chronic medical conditions, those who need critical care, or families and children who require frequent doctor visits. If this is the general makeup of your workforce, an HDHP may not be the best choice.
Many factors outside your control can affect the price of your HDHP’s plan premiums, such as state and federal laws, where you live, and the types of plans available.
When choosing an insurance plan, it’s a good idea to think about your and your employees’ total potential healthcare costs. Considering this, you can see whether selecting an HDHP would provide the best value.
Before you determine that an HDHP is right for your business, you should consider:
Of course, it’s impossible to predict the exact amount of total medical services your employees may need in a given year. However, a good place to start is by calculating your and your employees’ monthly premium costs.
According to KFF, the average annual premiums for covered workers enrolled in group HDHPs with a savings option in 2025 were $8,640 for single policies and $25,379 for family plans4. You’ll typically split these costs between you and your covered employees.
|
Plan type |
Average annual premium for group single coverage |
Average annual premium for group family coverage |
|
Low deductible health plan |
$9,818 |
$28,272 |
|
High deductible health plan |
$8,640 |
$25,379 |
You may be wondering whether you can offset some of your employees' costs with an HDHP. Even though they typically have lower monthly premiums, the challenge with an HDHP is that healthcare can still be expensive when your employees need it.
To help lessen the blow of an unexpected out-of-pocket medical cost, you can pair HDHPs with supplemental health benefits to pay for eligible expenses, such as an integrated HRA, health insurance stipend, or an HSA.
Let’s take a closer look at each of these benefits below so you can better understand how they work.
If you’re looking to lower healthcare costs and lessen the impact of your HDHP's high deductible, an integrated HRA, also known as a group coverage HRA (GCHRA), can help.
Integrated HRAs supplement employer-sponsored group health plans, including HDHPs, by allowing you to set a defined monthly allowance amount and reimburse employees tax-free for eligible out-of-pocket expenses their policy doesn’t fully cover, such as copays, coinsurance, and medical costs paid toward deductibles. However, group plan premiums are ineligible for reimbursement.
KFF found that 8% of organizations that offered health benefits in 2025 provided an HDHP with an integrated HRA. The 2025 KFF benefits survey also found that covered workers with an HDHP and an integrated HRA received an average annual employer HRA contribution of $1,966 for single plans and $3,810 for family coverage5.
Overall advantages and key features of integrated HRAs include the following:
Integrated HRAs are an excellent option for employers looking to keep their HDHP for the lower premium while keeping the employee’s traditional insurance plan the same, if not better, by enabling tax-free reimbursements.
Over the past few years, some small employers have started using health stipends to supplement their group health insurance plans.
With a health stipend, employees receive a fixed, taxable allowance to purchase out-of-pocket costs that meet their needs, such as prescription drugs, preventive care, and other medical procedures.
This extra taxable money can also help employees pay for items that the insurer won’t cover until they reach their deductible, or items that the traditional insurance plan doesn’t cover.
You’ll typically add your employer contributions to the employee's paycheck as wages on a recurring basis. But you can also offer a stipend on a reimbursement basis, where you pay an employee for eligible expenses after you approve their purchase.
Overall advantages and key features of health stipends include the following:
While health stipends can be a flexible option, they come with potential downsides. The IRS treats stipend payments as taxable wages for employees, and employers must pay payroll taxes on those amounts. Additionally, the law states you can’t require employees to spend the funds on medical care or ask them to provide receipts for premiums, doctor visits, or prescriptions. As a result, employees may choose not to spend their stipend on healthcare items.
HSAs are tax-advantaged savings accounts in which money accrues on a pre-tax basis for account holders to use for medical services and other qualifying out-of-pocket expenses. The employer and the employee can contribute to the HSA if the combined contributions don’t exceed the annual contribution limit. Regardless of where HSA contributions came from, the individual employee always owns the account.
Overall advantages and key features of HSAs include:
Offering an HSA and an HDHP helps ease an employee's financial burden, especially if the business makes additional contributions to the account. However, the employees must enroll in an HSA-qualified HDHP. For 2026, this now includes all on-exchange individual bronze and catastrophic health plans, as well as their mirrored off-exchange versions, to make contributions to their HSA6.
While group HDHPs can typically help you lower your healthcare premiums, they’re still a type of group plan. Smaller organizations may still struggle to meet their insurer’s minimum participation requirements or cover their share of the monthly premiums. Thankfully, there are alternatives available.
Stand-alone HRAs, such as the qualified small employer HRA (QSEHRA) and individual coverage HRA (ICHRA), allow employees to choose their own health plans on the individual market rather than opting for traditional group coverage. Then, employers reimburse employees for qualifying out-of-pocket medical expenses and their monthly plan premiums.
This modern approach to health benefits gives employees the freedom to choose the coverage that best suits them. At the same time, businesses of all sizes can secure predictable monthly costs without sacrificing quality.
Employees can even choose to enroll in individual HSA-qualified HDHPs or bronze plans, allowing them to take advantage of their HRA allowance and an HSA.
Because they often have lower premiums, HDHPs are a popular plan option for employers and employees. While there’s no doubt that they can offer huge savings, they may not be the right fit for your business. If you want to expand your HDHP's value, adding an integrated HRA or a health stipend is a good option. However, if you want greater flexibility and avoid costly group plan premiums, offering a QSEHRA or ICHRA could be the best option for your organization.
This article was originally published on May 28, 2020. It was last updated on February 20, 2026.