As health care costs continue to rise, many businesses feel forced to restructure their health plan offers. This has resulted in a noticeable rise in the popularity of HDHPs. Health deductible health plans (HDHPs) have been around for years. However, the 2014 introduction of the Affordable Care Act’s Health Insurance Marketplace led to a spike in more employer-based plans offering HDHPs. According to a survey published by the Kaiser Family Foundation, the number of plans increased from 5 percent in 2007 to 20 percent in 2013. Read on to learn the pros and cons of a high deductible health plan.
A high deductible health plan is defined as a plan that has a higher deductible than most standard insurance plans. In return, the premiums are lower. With an HDHP, you are responsible for paying more of your health expenses out-of-pocket before the insurance company kicks in to pay its share. High deductible health plans are often combined with health savings accounts (HSAs), which allows you to pay for certain medical expenses with funds that are free from federal taxes.
If you are an employer trying to build an attractive benefits package, you may be considering what type of health care plan is best. Here is a look at some of the pros and cons of an HDHP to help you determine if this option may be right for your business.
Pros and Cons of High Deductible Health Plans
As an employer that offers health care plans to your employees, it is important to regularly review your options. Health care plans can change from year to year, and the plan you have been purchasing may no longer be in your best interest. By comparing your options and choosing a plan that better aligns with your business objectives, you can give your employees comprehensive coverage while saving money in the long-run.
For 2019, the IRS states that an HDHP is any plan that has a deductible of at least $1,350 per individual or $2,700 per family. The total annual out-of-pocket expenses for an HDHP, including coinsurance, copayments, and deductibles, cannot exceed $6,750 per individual or $13,500 per family. For 2020, high deductible health plans must have a deductible of at least $1,400 per individual or $2,800 per family. The cap for out-of-pocket expenses cannot exceed $6,900 per individual or $13,800 per family. It is important to understand that not all places that fall in these guidelines will be HDHPs.
A high deductible health plan is currently the one plan that allows enrollees to contribute to health savings accounts (HSAs). HDHPs will also cover most preventive care services before the deductible, and no other services can be paid by the health plan until the deductible has been met. This typically means that an HDHP cannot have a copay for an office visit or prescription before the deductible is met. In mid-2019, the IRS expanded the list of preventive services that are able to be covered on an HDHP pre-deductible.
With an HDHP, you will be responsible for paying all costs out-of-pocket for everything besides preventive care until the deductible has been hit. Once the deductible is hit, the insurance company will pay out benefits based on the plan’s coinsurance levels. For many HDHPs, coverage is 100 percent after the deductible is met. If an employee also has an HSA along with their HDHP, they have the right to withdraw this money tax-free at any time to pay for medical expenses that are not covered by their high deductible health plan. If money is withdrawn from an HSA for any purpose other than a qualified medical expense, taxes must be paid on the withdrawal and a penalty will be imposed.
Here is a look at some of the top pros and cons of high deductible health plans.
- Low Premiums – High deductible health plan premiums are often lower than alternative health plans, such as PPO and POS plans.
- Wider Network – Unlike HMOs, which often have a restricted network, your employees will have the option to see a wide range of health care professionals.
- Save Money – If you have employees in good health that rarely use their benefits, they can actually save money.
- Low Out-of-Pocket Expenses – With HDHPs, any out-of-pocket expenses are not at the market rate and, instead, can be negotiated with the insurance company.
- Covered Out-of-Pocket Expenses – Policyholders can choose to combine their HDHP with a health savings account (HSA) to cover out-of-pocket expenses.
- High Costs for People with Chronic Illnesses – If you have employees with chronic illnesses that require regular trips to doctors and specialists, out-of-pocket expenses can be high.
- Certain Services Come Out-of-Pocket – Until you have reached your deductible, certain services like office visits, prescriptions, and diagnostic tests come out-of-pocket.
- Restrictions on Surgeries – If you have an employee that requires surgery, the deductible will need to be hit before the insurance company will pay their share.
- Deductibles Can Be High – The deductibles on high deductible health insurance plans can be quite high, especially for larger families.
- Poor Use of HSAs – When your monthly out-of-pocket expenses are high, you may not be taking full advantage of your HSA.
Is a High Deductible Health Plan Right for You?
As an employer, it is not always easy determining which type of health plan is best for your employees. While high deductible health plans can offer your workers a wide range of benefits, it is important to be aware of the downsides that can occur. Many employers choose HDHPs because they have lower premiums than other health plans. HDHPs also have the benefit of letting you contribute to a health savings account. However, the out-of-pocket maximum can be quite high.
If you are still not sure which health plan is best for your business, a professional business benefits consultant can help guide you in the right direction. For more information about the pros and cons of high deductible health plans or for assistance choosing a health plan for your business, contact the business benefits consultants at BBG.