It’s no secret that the use of high deductible health plans (HDHPs) continues to skyrocket. The number of covered workers on HDHPs has increased from just 4% in 2006 to nearly one-third of all covered workers in 2019 (30%). For 2020, the IRS defines an HDHP as any plan with a deductible of at least $1,400 for an individual or $2,800 for a family. An HDHP's total yearly out-of-pocket expenses (including deductibles, copayments, and coinsurance) can't be more than $6,900 for an individual or $13,800 for a family.
There are good reasons for this. HDHPs keep monthly premium payments low while providing 100% coverage for preventive, in-network services before employees satisfy their deductible. Because health benefits are a key tool for employers to recruit and retain top talent, employers need to make the most of their high deductible plan. This article discusses ways employers can do just that.
Choose the right HDHP for your employees
While a “high deductible” plan begins at $1,400 for an individual and $2,800 family, there are plenty of offerings with much higher deductibles that may work depending on your workforce’s demographics. If your workforce is primarily young and healthy workers, you and your employees can save a lot of money by opting for a plan that has higher deductibles and maximum out of pocket limits. This demographic rarely uses the more costly services and typically favors a bigger paycheck over coverage they rarely use. Conversely, if your workforce is older, it might be better to choose a plan with higher premiums and lower deductibles and maximum out of pocket limits. In this case, you can also consider supplementing the plan with a group coverage health reimbursement arrangement (GCHRA), health savings account (HSA), or flexible spending account (FSA).
Choose a health plan that meets your budget
It’s a well-known fact that group health insurance is expensive in the United States—so much so that in 2019 only 56% of small firms in the US offered it, many of whom were legally required to do so because they were Applicable Large Employers (ALEs) who must comply with the employer mandate. If an HDHP is all your organization can afford, you will still be providing your employees the preventative treatment they need to stay healthy and a valuable safety net in the event of a catastrophe. As mentioned in the previous section, HDHPs work quite well for employees who have minimal medical expenses or for those who have high medical expenses, when paired with a GCHRA or an HSA.
Choose an alternative to traditional group health insurance
Individual health insurance is more affordable than traditional group health insurance and still gives employees access to preventative treatments to keep them healthy and happy. You can subsidize employees tax-free for premiums and out-of-pocket expenses with health reimbursement arrangements (HRAs) or health savings accounts (HSAs). You can also make this transition seamless for your employees by engaging a licensed insurance agent or broker to work with your employees to evaluate their needs and find the ideal plan for their current life circumstances at no cost to the employee.
Get the best of both worlds with an individual HDHP and an HRA
Using an HRA to reimburse employees for individual insurance plan premiums (most of which are HDHP) and out-of-pocket expenses gives you the best of both worlds. You get all the cost savings and tax advantages of a traditional group HDHP while giving employees funds so they can get the care they need. The following summarizes key benefits.
Benefits for employers
- Cost control. Employers save on premium costs. In addition, instead of facing yearly hikes in premiums from a group insurance carrier, they have precise control over the allowance they provide employees. If you have a good year or want to increase your benefit to attract or retain employees, you can easily increase the allowance. If you have a bad year, you can reduce the allowance to make ends meet, and leave it up to your employees to decide whether (or if) they downgrade their coverage.
- Benefit control. Employers can specify which expenses they want to reimburse employees for. For example, an employer might choose to reimburse employees for medical and dental, but no vision.
- Flexibility. An ICHRA (individual coverage HRA) enables employers to offer different benefits to different classes of employees. For example, an employer can offer different allowance amounts to management and staff, or offer group coverage to in-state employees and an HRA to out-of-state employees. Alternately, employers might choose to keep things as simple as possible with a QSEHRA (qualified small employer HRA) that provides a single benefit that is available to all employees.
- Simple setup and management. HRA administration companies like PeopleKeep can get employers set up with a health benefit in under an hour that they can manage in minutes each month. You won’t need to hire or educate staff in how to work with and manage group health programs. Learn why thousands of employers choose PeopleKeep.
Benefits for employees
- Choice. Instead of choosing between one or two plans from a single carrier, employees can choose between multiple carriers, at the right level for their current life circumstances. Younger employees might choose a higher deductible plan that saves them money, while older employees might choose to pay additional money over your allowance out of pocket for a plan that has a lower deductible and a lower out-of-pocket maximum.
- Peace of mind. Employees can take comfort in knowing their coverage is what they want and is no longer dependent on continued employment with a specific employer. While their next employer might not have an HRA, the cost of most individual plans is still typically much less than COBRA for a traditional group health plan.
As the costs for premiums continue to surge, so do the number of employers opting for high deductible plans. With an HRA, employers can get the cost savings of an HDHP, get out of the insurance business, and give their employees tax-free money to buy coverage that more closely meets their personal needs.