High deductible health plans (HDHPs) have been growing in popularity as organizations look for ways to control their health care spending. According to the Kaiser Family Foundation, 26 percent of employers offered an HDHP option in 2015, with 52 percent of organizations with at least 1,000 employees offering HDHP options.
High deductible health plans have deductibles of at least $1,300 for an individual and at least $2,600 for a family, according to the IRS. HDHPs only cover preventive care before the deductible — all other costs are applied to the deductible until it's met.
The Appeal of HDHPs
The primary appeal of HDHPs is their low cost. Organizations and their employees both tend to pay lower premiums with HDHPs. The appeal of smaller premiums is easy to understand. But the ability to contribute to a health savings account (HSA), which is only available if a person is enrolled in a high deductible health plan, isn't as well understood. If you're considering offering your employees an HDHP, you should educate them about HSAs.
As appropriate, the education should include explaining the benefits of an HSA to an employee, including:
- Employers can contribute to an employee's HSA.
- Pre-tax dollars can be contributed to HSAs.
- The money in the HSA belongs to the employee — there's no "use it or lose it" restriction.
- The money in an HSA can always be used, with no taxes or penalties, for qualified medical expenses, according to the IRS.
- After age 65, HSA funds can be used for any purposes without a penalty. If used for non-medical expenses, they're subject to regular income tax.
Employees and HDHPs
In many cases, the more employees understand about high deductible health plans — and the associated HSAs — the more the plans appeal to them. It's not surprising that the finance and insurance industries have the highest percentage of employees enrolled in high deductible health plans, as reported by the Society of Human Resource Management. Because of the nature of their work, these employees are particularly knowledgeable about the benefits of HDHPs and HSAs. If you're considering adding high deductible health plans to your benefits package, ensuring your employees understand the benefits — and trade-offs — is an important first step.
Access to an HSA makes HDHPs very popular among employees who like tax-advantaged savings opportunities. If you have employees who are maxing out their 401(k) contributions, they're likely to appreciate an HDHP and access to an HSA.
On the other hand, since HDHPs don't pay for any services other than preventive care before the deductible is met, they're likely to appeal to healthy employees much more so than employees in poor health. They're also likely to appeal more to employees without children, as those with children may prefer plans with predictable copays for office visits.
"High Deductible" Is a Relative Concept
In 2016, more than half of workers with employer-sponsored insurance were enrolled in plans with deductibles of at least $1,000, according to the Kaiser Family Foundation. It's important to ensure your employees aren't getting hung up on fear of a "high deductible" — it may very well be that the deductible on the high deductible health plans you're considering isn't actually that much higher than the deductibles on the more traditional plans.
If you're considering a high deductible health plan for your employees, take the time to clearly communicate what you'll do to ensure that their health care remains affordable, while emphasizing the added control they'll have over their own health care spending — and savings.
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