High Deductible Health Plans (HDHPs): Pros, Cons, and Cost Savings
by Caroline Boyland March 15, 2022
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The Shift to High Deductible Health Plans (HDHPs)
High Deductible Health Plans (HDHPs) offer numerous cost saving benefits for employers, so, it only makes sense that we’re seeing more and more companies adopting these types of plans. Problem is, there’s still a lot of confusion amongst employees around what HDHPs are, and what the pros and cons are of transitioning to this type of plan.
Let’s break down the basics of HDHPs and how they differ from other plans.
HDHPs: Let’s break it down
To put it quite simply: A high deductible health plan is any health plan with a lower monthly premium and a higher deductible than traditional plans.
Let’s break that down. The monthly premium, which is the dollar amount coming out of each paycheck, is typically less, and your deductible, the dollar amount you pay before the insurance company begins to pay its portion, is higher than other plans. Because HDHPs require more money up front for medical bills, they are often paired with a savings account of money that has not been taxed, to be used specifically for medical funds.
Employers have a variety of alternatives, particularly when it comes to using tax-free funds to cover medical expenses. A health savings account (HSA) and health reimbursement account (HRA) are the two most common accounts to give tax-free funds.
A health savings account (HSA) is an employer-sponsored or employee-owned account into which pre-tax money can be deposited and used for eligible medical costs. These accounts can only be utilized with eligible HDHPs, as defined by IRS guidelines.
A health reimbursement arrangement (HRA) is a company-owned account that compensates employees for recognized medical expenses. Employers can claim a tax deduction, while employees are able to receive this money tax-free. These solutions are relatively comparable for employers.
An employer has more control over an HRA in most instances, while an HSA has lower administrative costs. Again, these accounts can be paired with an employee’s HDHP to assist in paying up front medical costs.
Benefits and Drawbacks of HDHPs for Employers
Benefits: Cost Savings
Compared to PPO plans, high-deductible health plans (HDHPs) can save companies thousands of dollars per year (Harvard Business Review reports a savings of roughly $900 per employee per year!). They’re less expensive in part because they discourage unnecessary medical treatment.
Drawbacks: Employee Confidence
For many employees, HDHPs are a newer type of plan, and many may be hesitant to adopt a plan that requires such a high deductible. HR teams may need to provide additional education and support during benefits selection and open enrollment to ease the concerns of employees.
Benefits and Drawbacks of HDHP for Employees
Benefits: Low monthly Rates & Covered Preventative Care
The majority of high deductible health plans have cheaper monthly payments. This means less money out of your paycheck and more money in your pocket each month. Additionally, preventative care is typically 100% covered in-network under most plans. So between lower out of paycheck costs and lower out of pocket costs for preventative care, you may be in a position to save money.
Drawbacks: Costly Non-Preventative Care
A higher deductible means that you’ll have to pay for medical care out of pocket up to that amount before your health insurance kicks in to cover the rest. If you select a high deductible health plan and require non-preventive care due to an emergency or managing chronic illness, you’ll be required to pay your entire deductible before your plan begins to assist you. Depending on your medical demands, these charges could be significant out-of-pocket expenses that you hadn’t budgeted for. This sometimes discourages employees from getting the care that they need, which isn’t good practice in the long-term and can lead to additional medical expenses down the line.
The rise in popularity of High Deductible Health Plans are just one of the many reasons employers are turning to Decision Support Tools to help their employees understand their options when picking benefits plans.
Nayya, for example, identifies the correct benefits for your employees based on their health and financial profile, and creates personalized plan recommendations powered by:
- over 3 billion consumer data points
- a broad network of medical carrier integrations
- and 200 million lines of claims data
This can ease the administrative burden on HR teams during times of benefits selection as they can spend less time focusing on educating and easing the concerns of employees who don’t know which type of plan best fits their needs.
Nayya also provides a holistic dashboard of all things benefits. Think, a one stop shop for things like: insurance cards, deductible spend tracking, claims management, in-network guidance, and more. This can help employees navigate their benefits, and specifically, help users on HDHP plans see how close they are to reaching their deductible, find in network care, and more. With the increase in popularity of High Deductible Health Plans, it’s more important than ever for employees to feel confidence and security when choosing their benefits.
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