At the time of this writing, another open enrollment season has come and gone. Within the next month or so, benefits brokers around the country will start looking into new products and services in anticipation of next year’s open enrollment. Meanwhile, employers will start wondering what they are going to do when next year’s premium hikes hit. In both cases, high deductible health plans (HDHPs) are on the table.
An HDHP is the modern equivalent of the catastrophic health insurance of the 1960s and 70s. HDHPs offer lower premiums in exchange for higher deductibles and very little first-dollar coverage. The question for brokers and employers is this: are HDHPs worth offering employees?
They are at least worth considering. Even if an employer ultimately decides an HDHP isn’t right for its workforce, there’s no way to know for sure without looking into the possibility.
Saving Money on Health Insurance
BenefitMall general agency recently published a blog post discussing HDHPs and first dollar coverage of telehealth services, says the primary motivation for employers offering high deductible plans is cost savings. Premiums on HDHPs are lower for both employers and employees alike.
Premiums are lower because the plans cover fewer services. In reality, HDHPs are best suited for covering major expenses like surgeries, cancer treatments, etc. They are mostly useless for primary care and preventative medicine until a subscriber reaches their annual deductible limit.
Total Healthcare Expenditures Matter
In light of how HDHPs work, the question of whether they are worthwhile often boils down to a subscriber’s expected healthcare costs. Though there’s no way to know for sure exactly how much person will spend on healthcare, an analysis from Value Penguin suggests that people actually pay less for HDHPs when their annual healthcare costs are $1,000 or less. When annual costs reach the $5,000 mark, choosing an HDHP could ultimately cost a consumer more.
Health Penguin reached this conclusion by adding up total annual healthcare costs including insurance premiums, deductibles, and actual expenses. Provided the difference in deductibles between an HDHP and traditional health insurance is large enough, a subscriber could ultimately pay more even with an HDHP.
Combining HDHPs and HSA
Comparing costs dollar-for-dollar does suggest that going the HDHP route can be more expensive in some cases. But doing so ignores several other factors. For instance, BenefitMall contends that HDHPs work best when they are combined with health savings accounts (HSAs). Note that not all HDHPs qualify as HSA-eligible.
At any rate, HSAs offer very definite tax advantages. There are three in particular:
- All funds contributed to an HSA are tax-free
- All earnings on an HSA account are tax free
- Withdrawals are tax-free as long as they are used to pay qualifying expenses.
It is obvious that the tax advantages of combining HSAs with HDHPs could offset some of the higher costs created by the gap in deductible limits. But where the gap is not so great, combining tax savings with lower monthly premiums can make the HDHP a better deal than traditional group insurance.
Every Situation Is Different
Are HDHPs worth offering to employees? There is no way to make a blanket statement on the matter. Each situation is different. However, this much is true: it is no more appropriate to advise all employees to enroll in a more expensive comprehensive plan if they can afford it than to recommend all employers offer HDHPs.
How consumers pay for healthcare services is a complicated matter. There is no one-size-fits-all solution. For some employers and employees, the HDHP is the best among all options.