Small businesses everywhere in the U.S. have been feeling the pinch from rising health care for several years now. According to a report by the Kaiser Family Foundation, premiums for family coverage have risen 19 percent since 2012 and 55 percent since 2007. High deductible health plans (HDHPs) have been gaining steam as a popular alternative to traditional health plans among employers and employees.
"More and more employers are offering an HDHP. In fact, over 29 percent of all employer-sponsored plans are HDHPs," said Shobin Uralil, co-founder of HSA platform Lively. "There is no question this growth is in part due to higher healthcare costs."
The Pros of HDHPs
Higher deductibles usually mean lower premiums for small businesses trying to find ways to cut costs and save. In 2017, the average annual premium for an employer sponsored family coverage was $18,764. Premiums for HDHPs are typically on the low-end, with the average annual cost for family coverage HDHP about $17,581.
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 deductibles for most medical costs are high, many HDHPs still offer basic preventative services such as annual check-ups, 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 the 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 the insurance can help.
Non-preventative health conditions and unexpected medical emergencies can be costly for employees on a HDHPs as the annual deductibles for these plans are between $1,350 to $6,650 for an individual and $2,700 to $13,300 for a family. Should an employee be faced with a medical situation, they need to be prepared to pay the amount before insurance will assist or negotiate with healthcare provider to make a payment plan.
This high amount can make it difficult for employees to immediately pay off, resulting in stress and frustration. Worse, it can prompt employees to 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 worse conditions, which can lead to lost time at work.
HDHPs are generally not recommended for those who suffer from frequent or 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 the business, it is in a way pushing the costs onto the employee, especially if they're faced with a serious medical situation. However, many proponents of HDHPs argue that they're for the most part beneficial to both businesses and employees, it just places 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 better take a proactive role in choosing their healthcare providers and how to best save. 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 any 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."
The other component to many HDHPs is a health savings account (HSA). These pre-tax savings accounts employees contribute to can help offset the costs accrued from high deductibles and copays and are usable for a wide-spectrum of qualified 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. Only 2 out of 5 private employers currently offer an HSA with HDHP, according to Michael Olivia, financial representative with WestPack Wealth and Wealth Strategy Partners. Employers should also offer resources to employees on how to best use their HSAs to offset their healthcare costs.
Ultimately, education for your employees is important so they can make the best decisions when utilizing the insurance options, you provide. If you have a diverse organization with employees with different healthcare needs, then it's best to offer HDHPs alongside traditional, lower deductible plans, then work with them to make the best choice.