Do high deductible health plans deserve their bad rap?

There are many types of health insurance plans available, each with a set of plusses and minuses. Yet high deductible health plans (HDHP) seems to be the least favorably viewed. Before dismissing HDHPs out of hand, let’s take a look at what’s driving that sentiment.

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How a high deductible plan works

In exchange for lower upfront costs (aka the monthly premium) employees pay medical services until they meet the (high) deductible and insurance kicks in. How much lower? The average premium for single coverage with an HDHP is $6,459 compared to $6,896 across all plan types.1

For 2018, HDHPs must have a minimum deductible of $1350/single and $2700/family coverage.2 That’s a hefty price tag for many workers, but when and HDHP is paired with a Health Savings Account (HSA) employees can contribute pre-tax dollars to help pay for healthcare expenses.

How health savings accounts can help

A health savings account (HSA) allows employees or employers (or both) to contribute tax-free funds to help pay for qualified healthcare expenses. HSAs are employee-owned for life, even if a worker leaves the company. As such, they can help defray healthcare costs that employees would otherwise pay out of pocket, like deductibles and co-payments now, and in the future.

For 2018, the maximum combined contribution for HSAs is $3,450 for an individual and $6,900 for a family.2

FSAs show the company values its employees’ health

Flexible spending accounts (FSAs) work in much the same way as HSAs, except that funds are "use it or lose it," meaning they revert back to employers at year end. Because some employees will use all their FSA funds, while others will not, those reverted funds offer businesses an affordable way to offer a benefit that shows the company values its employees’ health. Importantly, employees have access to the full amount of an FSA on the first day of their plan year, even if funds haven't been deducted yet from their paycheck.

For 2017, the maximum contribution limit (deducted from the employee's salary) is $2,600. The employer can provide a matching contribution as long as it does not exceed $500.3

An HDHP may be right for your small business

Although HDHPs often get a bum reputation, they can be a cost-effective means for providing employee health insurance. And when paired with HSAs or FSAs, the flexibility of HDHPs can allow employers to help cover some of the deductible costs, while still paying less in premiums – and that may make the plans worth another look.

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