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.
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).
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.
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.
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
Benefits for employees
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.