As healthcare costs continue to rise, more and more Americans report difficulty affording medical treatment. In fact, 27% of Americans say they have put off or postponed getting health care they needed due to costs.1 And three in 10 Americans report problems paying medical bills.2
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). According to the Kaiser Family Foundation, 28% of covered workers were enrolled in an HDHP in 20173 up from nine percentage points over the last five years.4
Love them or hate them, HDHPs aren’t going away any time soon. If you’re considering making the switch, here are some important questions to ask.
What is a high deductible health plan?
In short, it’s a health plan with a higher annual deductible and a higher out-of-pocket maximum limit than a traditional major medical plan. The Internal Revenue Service (IRS) defines a qualified HDHP that can be used with an HSA in 2019 as any plan with a deductible greater than $1,350 for an individual or $2,700 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 out of their own pocket until the deductible is met. Additionally, if an expensive procedure like surgery should be required, this deductible must be met first.
For 2019, the IRS caps a qualified HDHP’s total yearly out-of-pocket expenses at $6,750 for an individual or $13,500 for a family. If your employees experience a medical event, coming up with $13,500 may be financially devastating.
What are the pros?
While the deductible is higher, premiums for HDHPs are typically lower than traditional plans like PPOs. This means employers may save on premiums for employees. And for employees who are generally healthy and rarely use their health benefits, HDHPs may provide a money-saving opportunity. Additionally, offering a qualified HDHP also allows you to provide your employees with a Health Savings Account, or HSA. An HSA allows policyholders to set aside tax-free dollars to help cover their out-of-pocket medical expenses. HSAs are individually owned and do not expire, so employees can take their account with them if they leave employment. Watch how HSAs and HDHPs work together.
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. 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. American Fidelity Assurance Company offers several supplemental benefits that may help offset the costs associated with an HDHP. Those plans include:
- Limited Benefit Cancer Insurance*,+
- Group Limited Benefit Critical Illness Insurance*,+,##
- Accident Only Insurance*,+
Not only do these plans pay benefits for eligible claims, but several also provide an annual wellness and health screening benefits. 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 do 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 for a custom education plan.
* These products may contain limitations, exclusions and waiting periods.
+ This product is inappropriate for people who are eligible for Medicaid coverage.
## Group Critical Illness is only offered on an after-tax basis.
1Kaiser Family Foundation: Americans’ Challenges with Health Care Costs; March 2, 2017.
2Kaiser Family Foundation: Americans’ Challenges with Health Care Costs; March 2, 2017.
3Kaiser Family Foundation: 2017 Employer Health Benefits Survey; September 19, 2017.
4Kaiser Family Foundation: 2017 Employer Health Benefits Survey; September 19, 2017.