As healthcare costs continue to rise, more and more Americans report difficulty affording medical treatment. In fact, since 2008, annual deductibles for covered workers have increased eight times as fast as wages1. And, 69% of workers say finances are a significant cause of stress2.
For employers, this can be a troubling scenario. You want to help your employees obtain quality, affordable medical care, but you may not be able to afford the increasing costs of coverage.
As a result, many employers are turning to a high deductible health plan, or HDHP, for lower premiums and attractive savings account offerings—like Health Savings Accounts (HSAs).
Love them or hate them, HDHPs aren’t going away any time soon. If you’re considering making the switch, here are some important things to consider.
What is a high deductible health plan?
In short, an HDHP is a health plan with a higher annual deductible and a higher out-of-pocket maximum than a traditional major medical plan. For 2020, the Internal Revenue Service (IRS) defines a qualified HDHP as any plan with a deductible greater than $1,400 for an individual or $2,800 for a family.
What are the cons?
Because all healthcare expenses are paid out-of-pocket until the deductible is met, the upfront costs may be overwhelming for some employees. Employees must pay for prescriptions, office visits, treatment, and tests until the deductible is met. Additionally, if an expensive procedure like surgery should be required, this deductible must be met first.
For 2020, the IRS caps a qualified HDHP’s total yearly out-of-pocket expenses at $6,900 for an individual or $13,800 for a family. If your employees experience a medical event, coming up with $13,800 may be financially devastating.
What are the pros?
While the deductible is higher, premiums for HDHPs are typically lower than traditional plans—like PPOs. For employees who are generally healthy and rarely use their health benefits, HDHPs may provide a money-saving opportunity for both them and their employer.
Additionally, offering a qualified HDHP allows employers to provide an HSA. HSAs allow policyholders to set aside tax-free dollars to help cover their out-of-pocket medical expenses. Because HSAs are individually owned and do not expire, employees can take their account with them if they leave employment.
Who does an HDHP help, and who does it hurt?
While you can’t predict the health of your employees and their families, you can consider several scenarios to help determine how an HDHP may affect your workforce.
For example, a healthy person with no chronic health issues or prescription requirements may find the lower monthly premiums associated with an HDHP to be beneficial. However, a person with a family history of heart disease who takes a daily prescription and visits regularly with a cardiologist will likely see an increase in out-of-pocket medical expenses.
During months with multiple tests or check-ups, an employee may not be able to set aside money for an HSA; whereas, a generally healthy person should be able to save more from each paycheck to contribute to an HSA.
How do the costs break down?
To dig deeper, consider this hypothetical example:
How can you offset the costs of an HDHP?
In addition to offering HSAs, you may consider adding a suite of supplemental products to your benefits package. While supplemental products don’t directly help pay for out-of-pocket costs incurred while working to meet the high deductible, they can provide your employees with benefits paid directly to them to use as desired, in the event of a qualified injury or illness. Those plans include:
- Cancer insurance
- Critical illness insurance
- Accident insurance
- Disability insurance
- And more
Not only do these plans pay benefits for eligible claims, but several also provide an annual wellness and health screening benefit. While these benefits won’t cover an entire deductible, they may help ease some of the financial impact associated with high medical costs.
How do you know which plan is best for your business?
Unfortunately, there’s no one-size-fits-all answer. However, if you decide to offer an HDHP, make sure your employees are prepared. Providing education about supplemental benefits and HDHP basics is an important step in helping them select the right benefits for themselves and their families.
American Fidelity can educate your employees about HDHPs by offering one-on-one benefit reviews, group meetings, custom benefits websites, and educational materials during your enrollment. Contact your American Fidelity account representative to get started.
1Insurance Journal: Employees’ Share of Health Costs Continues Rising Faster Than Wages; October 8, 2018.
2John Hancock Retirement Plan Services: The Winding Road to Retirement; June 2018, p 2.