Offering High-Deductible Health Plans: The Value for SMBs and Employees

26 April 2023 ExtensisHR7 minute read

Quick look: Offering High-Deductible Health Plans is a smart step for any small- and medium-sized business looking to create a competitive employee benefits plan. Here, we’ll explain what a HDHP is, the value for both the employer and employee and how a PEO can help source and administer.

High-deductible health plans (HDHP) aren’t a new offering, but it is steadily increasing in popularity. According to a recent report, a whopping 55% of Americans enrolled in HDHPs in 2021. That’s an 83.7% increase over seven years, up from just over 30% in 2013. Popularity for these plans also grew during the recession of 2008 when employers struggled to counter the rising cost of healthcare while staying in business. HDHP became an alternative to the standard expensive HMO or PPO health plans. Since 2016 nearly a third of large employers have offered the plan and have participation of almost 30%.

With healthcare costs expected to increase again in 2023, there’s a good chance that employees of smaller businesses will be interested in this option. As SHRM explained, there is a projected 7.4 per person cost increase for open-access preferred-provider plans, with dental rising 4% and prescription drugs looking to reach double digits. This is largely due to inflation’s influence on the economy which was 6.5% in 2022.

What is a high-deductible health plan?

A high-deductible health plan functions much like other plans but offers a lower premium in exchange for higher out-of-pocket costs. They pay for most preventative care services like other plans do, but the coinsurance only becomes active after the participant hits their deductible.

It’s important to note that the Internal Revenue Service (IRS) sets the limits and guidelines for deductibles in HDHPs. For 2022, the IRS defined a HDHP as any plan with a deductible of at least $1,400 for an individual or $2,800 for a family. An HDHP’s total yearly out-of-pocket expenses can’t be more than $7,050 for an individual or $14,100 for a family.

To help families and individuals with out-of-pocket expenses, many companies pair a Health Saving Account (HSA) or a Flexible Savings Account (FSA) with the HDHP. Both allow an individual to set aside pre-taxed funds for anticipated medical expenses later. They differ in that an HSA can be rolled over annually, and an FSA needs to be used by the end of the year or the funds will be forfeited.

Benefits of offering HDHP to employees

HDHP can be a cost-effective way for small employers to provide more health insurance options to their workforce. And while it may seem like a large undertaking to include this option, SMBs should evaluate its many advantages. Company leaders can also look to the HR experts at a professional employer organization (PEO) to help source, administer, and manage these plans.

When prepared properly, HDHPs can…

Lower costs for employers

For most plans, the employer helps with the costs of the premium. Because HDHP can provide employees with discounted prices, the employer’s portion that they pay is also lowered. Also, employers can save on payroll taxes from employees contributing to their HSAs, and if employers contribute to their employees’ accounts, those contributions are tax-deductible.

Attract and retain talent

By providing more options for employees, companies can attract top talent, keep current employees happy, and retain staff that might have gone elsewhere for better benefit options. Plus, the money a company saves when employees enroll in an HDHP can be redirected to other desired benefits like wellness programs.

Create more employee engagement

In many cases, employers contribute to an employee’s HSA. This demonstrates to your team that you care about their health and well-being and leads employees to feel more valued and engaged in their work.

Who would be an ideal fit for a HDHP?

A HDHP is generally a good option if a person is young, single, relatively healthy and expects little to no healthcare expenses. It can give these individuals a way to save money on expensive premiums because they typically wouldn’t use their health insurance much, nor would they need coverage for spouses or dependents.

HDHP could also benefit people with major health issues. By combining the maximum out-of-pocket expenses and premiums, and the ability to save money tax-free for a procedure can help put these people ahead of the financial game. But mostly, any individual that is looking for more control of their healthcare would find HDHP a good option.

Why would employees choose a HDHP?

HDHPs sometimes get a bad reputation, but it’s important to communicate their financial benefits and how they can help employees take a more active role in their healthcare.

Employees who opt to enroll in a HDHP may…

See lower premiums

The premiums of HDHP are notably smaller than standard benefit plans, on average 20% less. By selecting an HDHP, employees will see larger paychecks after benefits deductions and taxes averted due to the plan.

Experience greater savings potential

With an HSA connected with most HDHP, participants can save tax-free funds for any anticipated procedure or build savings for the unexpected. Their account can even follow them if they were to leave their current employer. Many are discovering the savings potential as out-of-pocket spending increased by more than 10% in 2021, yet the average HSA balance also increased the same year.

Incur less out-of-network provider penalties

Depending on the plan, employees may choose to use either in-network and or out-of-network providers. Using in-network providers will likely save them some money, but HDHPs are more flexible with who issues care. Because of this, there are fewer times that these fees occur.

Have more control over their healthcare

Participants of HDHPs have a greater ability to negotiate rates for medical services including doctor visits, testing, and lab work. This allows for more options and say with their medical care.

Choose their own network of providers

One of the biggest complaints about HMOs is the inability to decide which doctor they can see. Much like PPO, participants of HDHPs have more input in which doctors they choose and the locations of those physicians.

No need for a primary care physician or referrals

Some plans require an individual to see their primary care physician first or get a referral to see a specialist. HDHP takes out the extra step, allowing participants to make appointments and see whom they want—quickly and without the hassle and added expense.

How to increase employee enrollment of HDHPs

The world of insurance can be confusing for many people. When offering a high deductible health plan, there can be a lot of questions and concerns. If you want employee buy-in, educating them is the first, best step. There should be a communication strategy in place, with the delivery of the information best done prior to open enrollment. Consider multiple forms of communication, especially considering that no two people are the same and will receive information differently.

Another way to increase enrollment would be to bring in the assistance of a PEO. With a PEO like ExtensisHR, SMBs can find help with every step involved with offering HDHPs to employees.

PEOs can provide:

Administration assistance with HDHPs
Guidance with benefits from in-house HR Managers and experts
Education of benefits during open enrollment
Regular benefit communication throughout the year

Additionally, ExtensisHR offers a wide range of people management services like guidance, recruiting, risk management, and payroll administration to help simplify HR for small businesses.

Looking for the right health insurance plan for your business? Contact ExtensisHR today and learn how providing more options to your workforce can be the right move to stay competitive.