The Pros and Cons of High-Deductible Health Plans

• High-deductible health plans have lower monthly premiums, but this comes at the cost of greater out-of-pocket healthcare expenses.
• If your employees are primarily young and healthy and you can also offer HSAs, HDHPs could be a great fit.
• HDHPs can be problematic if your employees have children or chronic conditions. An outsourced HR service can help you find the right health insurance plan for your company.
• This article is for small business owners considering high-deductible health plans as a way to offer employee health insurance.

Small businesses everywhere in the U.S. have been feeling the pinch from rising health insurance costs for several years now. According to a report by the Kaiser Family Foundation, premiums for family coverage have risen 22% since 2016 and 47% since 2011. 

Rising health insurance costs may explain why high-deductible health plans (HDHPs) have been gaining steam as an alternative to traditional health plans among both employers and employees. Below is everything you should know about HDHPs as you consider them for your business.

What is a high-deductible health plan?

A high-deductible health plan, or HDHP, is a tax-advantaged combination of traditional health insurance and a health reimbursement account (HRA) or health savings account (HSA). As its name suggests, its deductible (the amount one must pay out of pocket before the insurer starts paying) is higher than average. However – and this is why HDHPs have become so popular – the monthly premium is lower.

The pros of HDHPs

Higher deductibles usually mean lower premiums for small businesses trying to find ways to cut costs and save. In 2021, the average annual premium for an employer-sponsored family coverage plan was $22,221. Premiums for HDHPs are typically on the low end, with the average annual cost for family coverage HDHPs about $20,802.

HDHPs are generally good options for young and single employees who are more likely to be healthy and don’t need coverage for spouses and dependents. While the deductible for an HDHP is generally high, many HDHPs offer basic preventive services, such as annual checkups, vaccines and generic prescriptions, at little to no cost.

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The cons of HDHPs

HDHPs are a boon to small businesses everywhere due to their lower premiums, resulting in immediate savings for both employers and employees. The problems arise when employees are faced with inevitable, costly health care expenses and need to pay much more out of pocket before insurance kicks in.

Chronic health conditions and unexpected medical emergencies can be costly for employees on HDHPs, as the annual deductible for an HDHP is between $1,400 and $7,050 for an individual and $2,800 to $14,100 for a family. Employees should be prepared to pay for their care up to the amount of the deductible before insurance will assist, or negotiate with their healthcare provider to reduce the cost or structure a payment plan.

A high deductible can make it difficult for employees to immediately pay their medical expenses, resulting in stress and frustration. Worse, employees may avoid recommended medical care and delay essential procedures because they can’t or don’t want to pay the high deductible. This can result in bad outcomes, which can lead to lost time at work. 

HDHPs are generally not recommended for those who suffer from chronic health conditions, as well as families with children who require frequent doctor visits.

What you need to know when offering HDHPs

While offering an HDHP to employees will likely result in savings for your business, it essentially pushes the costs onto the employee, especially if they’re faced with a serious medical situation. However, many proponents of HDHPs argue that they’re generally beneficial to both businesses and employees. They just place more responsibility on the employee to make smarter healthcare decisions.

“High-deductible health plans do shift some of the increasing cost of health insurance onto employees,” said Matthew Struck, partner at Treadstone Risk Management. “The business owner saves on their premium because the employee pays the first few thousand dollars in expenses. The hope is that the employee has skin in the game and uses their insurance wiser. Price shopping for services is an example of this.”  

It’s recommended that businesses that offer HDHPs also offer education to employees on how to be a better healthcare consumer. Many employees typically select options without much research, going to whoever’s near them or to the same provider repeatedly without checking to see if there are better options.

“Unfortunately, the lack of pricing transparency in the market makes this dynamic almost unachievable with most plans,” Struck said. “If employers want to help their employees with resources to choose medical providers with cost-effective, high-value care, they should place their coverage with an insurer or administrator that can provide these types of services.”  

Improving your HDHP with an HSA

The other component to many HDHPs is an HSA. These pretax savings accounts that employees contribute to can help offset the costs associated with high deductibles and copays and are usable for a wide spectrum healthcare expenses.

Offering an HSA along with an HDHP helps ease the employee’s financial burden, especially if the business also contributes a monthly or annual amount to the account. Employers should also offer resources to employees on how to best use their HSAs to offset their healthcare costs.

Ultimately, you should educate your employees so they can make the best decisions when utilizing the insurance options you provide. If you have a larger organization with a lot of employees, then it’s best to offer an HDHP alongside traditional, lower-deductible plans and then help your employees to make the best choice.

How to find the right HDHP (or other health insurance plan)

Health insurance options are often complex to navigate and understand. That can be worrisome. What if you sign up for a plan that causes more problems than it solves? To avoid this issue, you can work with an HR outsourcing company. 

HR outsourcing firms specialize in, among other things, employee benefits administration, including health insurance. R read all of our HR outsourcing reviews to find the right fit.

Of course, outsourcing your HR is another cost to factor into your budget. If you can’t afford it but you’re required to offer employee health insurance, just search for plans yourself while keeping all the above in mind. With the right amount of patience and knowledge, you can offer health insurance to your employees without too much hassle.

Max Freedman contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article.