With healthcare costs out of control, employers are paying a lot of money to keep their employees healthy. For some organizations, particular small and mid-sized businesses, offering traditional health insurance just isn’t possible due to the cost. Some employers that do currently offer traditional health insurance are also looking for ways to decrease the expense while still providing their employees with high-quality health benefits.
Many employers are switching to a high deductible health plan. These plans are becoming increasingly common in the US, particularly since new legislation for health savings accounts was signed into law in 2003.
Here’s what you need to know about them.
In a Nutshell
A high deductible plan is a type of traditional health insurance with lower premiums and higher deductibles. It is considered catastrophic coverage—intended to pay for the healthcare costs associated with catastrophic illnesses rather than pay for smaller healthcare needs.
Pairing It Up
By offering a high deductible health plan, you’re eligible to pair it with a health savings account (HSA) or other type of flexible tax-advantaged reimbursement account. Both employer and employees can put aside pre-tax dollars for medical expenses in an HSA. Your employees can use the pre-tax dollars in the health savings account in order to pay for eligible out-of-pocket medical costs before the high deductible on your health plan is met. The savings received from the lower premiums on a high deductible plan can help you and your employees fund a health savings account.
How You Save Money
A high deductible health plan will lower your overall healthcare costs in a few ways. Firstly, because the deductible is high—a minimum of $1,300 for individuals and $2,600 for families in 2016 and a maximum of $6,550 for individuals and $13,100 for families, the insurance carrier doesn’t have to pay for every cut and scrape your employees or their dependents receive. As such, your premiums are significantly lower, making it more affordable to offer benefits.
A high deductible health plan will only “kick in” for employees once that high deductible number is met. This means that your employees are paying for smaller medical costs out of pocket, making them more conscious of medical expenses due to the sharing of costs. They will seek out less expensive treatment options, consider if tests are really necessary, only go to the hospital for true emergencies, and use discretion because they’ll be footing part of the bill. The counter argument to this is that employees may skimp on preventative care in order to save money. This may well be true which is why pairing your high deductible plan with an health savings account or a similar reimbursement arrangement is so important.
If you have a healthy employee population, then a high deductible health plan can save you a lot of money—because otherwise, you may be overpaying for traditional health insurance that will be left unused.
When a high deductible health plan is paired with a health savings account, your employees will gain greater control. The money in the HSA belongs to them, and they can decide how to budget it. This allows you to better meet their diverse healthcare needs. An HSA is also portable—your employees have it for life, even with a change in health insurance or retirement.
There are three ways for your employees to save on taxes when you pair your high deductible plan with a health savings account. Your employees can deposit pre-tax dollars for medical expenses, the savings in the account grow tax-free, and the employees do not have to pay taxes or penalties to withdraw and use the funds for qualified medical expenses, now or in the future.
If you are looking to offer your employees affordable health insurance and have a relatively healthy employee population, then a high deductible plan paired with a health savings account is one of the best alternative options to consider. You’ll be able to reduce your healthcare spending while still offering your employees the healthcare insurance they want and need.