Rising healthcare costs have forced many employers to rethink the type of coverage they offer employees. One option that’s especially popular these days is a high-deductible health plan (HDHP).
What is an HDHP?
As its name implies, an HDHP is a type of health coverage with a higher deductible and lower premium than a traditional healthcare plan. It ensures that employees are covered in the event of serious injuries and illness, but it doesn’t offer many extras. In other words, it’s a form of “catastrophic coverage.” In a true HDHP, all healthcare expenses (sometimes with the exception of preventive services) are paid out of pocket until the deductible is met.
The main catalyst for the growing popularity of HDHPs is the increasing cost of healthcare. Many companies (and their employees) don’t have the money to spend on traditional health coverage, but an HDHP is a viable option. The Kaiser Family Foundation’s 2016 Employer Health Benefits Survey found the percentage of employees enrolled in employer-sponsored HDHPs was only eight percent in 2009, but that grew to 29 percent in 2016.
What Are the Benefits?
The most glaring benefit is the lower premiums, which are more affordable than most traditional healthcare plans. In some cases, this is the only way that a company can realistically cover its employees. This makes it ideal for employees who seldom use their health benefits. If they don’t take any expensive medications, their monthly bills tend to be lower.
Another benefit is the ability to open a Health Savings Account (HSA), to help cover the out of pocket costs. An HSA is a tax-advantaged account you can contribute to for purposes of paying qualified medical expenses.
What Are the Drawbacks?
If an individual does require expensive medical care, they need to meet a high deductible before their coverage kicks in. The IRS defines the limits for an HDHP deductible and out-of-pocket maximum. For 2018, the deductible must be at least $1,350 for an individual or $2,700 for a family and the yearly out-of-pocket maximum can’t be more than $6,650 for an individual or $13,300 for a family.
In turn, this can create a real economic hardship for some employees. If a person undergoes surgery, makes frequent visits to the doctor, or requires expensive medication, it can be financially difficult.
Is it Right for Your Company?
Determining the viability of a consumer-driven health plan depends on two key factors—the overall healthcare needs of your workforce and how much you and your employees are willing to spend on healthcare. If those needs are minimal and you’re looking to save money, it’s definitely something to consider. Otherwise, it may not be the best option.
It’s easy to see why an HDHP would be of interest to many of today’s employers. This type of plan provides a means of providing employees with basic coverage without costing an arm and leg. Before you jump in head first, it’s critical to look at it from all angles to decide if it makes sense for your company.