Employers have a number of health plan options to choose from when it comes to offering a health benefit to employees. One option is a high deductible health plan (HDHP). Although its benefits appeal to a select group of employers, an HDHP can be a valuable tool in an employer's health benefits toolkit.
What is a high deductible health plan?
In 2020, the IRS defines an HDHP as any plan with an individual deductible of at least $1,400 or $2,800 for a family. An HDHP’s total annual out-of-pocket expenses can’t be more than $6,900 for an individual or $13,800 for a family. These totals include the cost of deductibles, co-insurance, and co-payments. Out-of-network services aren’t included in the annual cap.
What are the cons of an HDHP?
HDHPs are a good option for saving money on premiums while still offering coverage for potential emergencies and unforeseeable health events. Employees and their eligible family members pay for care until they meet the deductible. When their deductible is met, the plan pays a percentage of covered services and prescriptions.
The benefits of an HDHP include:
- Low premium costs
- Health savings account (HSA) compatibility
- Group coverage health reimbursement arrangement (GCHRA) compatibility
What are the cons of an HDHP?
While HDHPs are a great cost-saving option, there are some potential downsides. Higher deductibles put more financial burden on employees when they have health care expenses. Depending on their personal situation, some employees and their families might not ever meet their deductible, causing the benefit to lose value and credibility in the eyes of employees. In this case, employers have the option to supplement out-of-pocket expenses, tax-free, using a GCHRA (GCHRA) or by offering an HSA
When is an HDHP the right option?
Considering the pros and cons, when is an HDHP right for an organization?
The first situation is when employees and their families are generally healthy and don’t have high prescription costs. In this case, the health plan is there in the event of an emergency.
Conversely, HDHPs are also a good option for individuals or families that have a lot of health care costs and will meet the deductible quickly. As an employer, it can be tricky to know what health situations employees are in. Because of HIPAA regulations, employers aren’t legally allowed to ask employees for this information but can offer an anonymous poll explaining the pros and cons of an HDHP and asking for employee buy-in.
The other, less complicated situation, is when the HDHP is paired with an account-based health plan, like an HSA or GCHRA.
HSAs are tax-advantaged accounts owned by the individual employee that can be used to pay for out-of-pocket medical expenses when paired with a qualified HDHP. Employers can contribute to an employee’s HSA, but the account stays with the employee. In addition to employer contributions, employees can add their own tax-free contributions.
The GCHRA is a health benefit designed for small to midsize employers that works best when offered alongside an HDHP, though it’s compatible with all ACA-approved group health insurance plans. When used with an HDHP, a GCHRA helps to offset employees’ upfront costs while keeping premium costs low. Employers use a GCHRA to offer an allowance of money which is used to reimburse employees for out-of-pocket medical expenses, helping them to meet their insurance deductible and out of pocket medical costs. Employers own the GCHRA, meaning all contributions come from the employer and the money stays with them if not fully used within a designated plan period. Furthermore, with the GCHRA a pre-funded account, or specific savings account available to the employee is not required. Supplementing an HDHP with a GCHRA is a great way to control costs while still offering a valuable benefit that employees can use regardless of how healthy they are.
Combining an HDHP with a health reimbursement arrangement
Employers who choose to offer an HDHP to employees have an additional option to help make healthcare more affordable. Using a GCHRA, employers can reimburse employees tax-free for out-of-pocket medical expenses.
Read our one-page document, “GCHRA at a glance,” to learn how offering an HDHP can be made more effective for your employees.
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