How High Deductible Health Plans (HDHP) Work
High deductible health plans (HDHPs) are becoming a popular health insurance option, for both employers and individuals. In fact, studies have shown that the number of people enrolled in an HDHP has grown steadily over the past several years. Unlike standard deductible health plans, HDHPs offer employees a health insurance option with significantly lower premiums, but, as the name suggests, considerably higher deductibles when they do receive non-preventive health care.
HDHP coverage requirements
A high deductible health plan must provide significant benefits and satisfy certain minimum deductible and out-of-pocket maximum requirements.
For 2015, the minimum deductibles for HDHPs for individuals and families are $1,300 and $2,600, respectively. The annual out-of-pocket maximums are $6,550 for individuals and $12,900 for families. The HDHP out-of-pocket maximums for 2015 are within the cost-sharing limits outlined under the Affordable Care Act. Both the minimum deductible and out-of-pocket maximum amounts are subject to cost of living adjustments each year.
HDHPs, like standard deductible plans, must cover preventive services free of charge. Preventive care includes things like immunizations, check-ups, tests, and other services used to prevent and reduce the risk of developing health problems in the future.
What makes HDHPs so appealing?
Many employees, particularly those who use little or no medical care throughout the year, prefer an HDHP plan because it allows them to minimize their monthly cost for benefits and save the hundreds of dollars that would have previously gone to pay for health coverage they weren't using. Employers like HDHPs because the low premium means they're generally cheaper to purchase than other, more traditional health coverage. Also, employees enrolled in HDHPs are typically more proactive about seeking preventive care and living a healthier lifestyle because they have to foot more of the bill in the event they do need medical care.
Health Savings Accounts
Perhaps the biggest reason for the growing popularity of HDHPs are the health savings accounts (HSAs) that are only available to people enrolled in high deductible health plans.
Like flexible savings accounts (FSAs) and health reimbursement accounts (HRAs), HSAs are a type of tax-advantaged savings account people can use to pay for qualified medical expenses until they meet their deductible. Unlike FSAs and HRAs, however, HSAs are owned by the employee (not the employer), the money in the account never "expires," and accounts are not subject to any carry-over limits.
Both the employer and the employee can make contributions to an employee's HSA. The contributions are made prior to taxes being assessed, and the money placed into an HSA can earn interest over time.
Because of the tax benefits associated with an HSA, the IRS imposes strict contribution limits, which may be increased from year to year. The contribution limits for 2015, for instance, are set at $3,350 for individuals and $6,650 for families. (The IRS does allow account holders over the age of 65 to contribute an extra $1,000 per year above these limits.)
Many employees feel that the addition of an HSA to their high deductible health plan allows them to maximize their health care dollars without compromising the quality of coverage.
Considerations for employers
Employers who are interested in including a high deductible health plan option for their employees should first consider their level of involvement in the plan. Will you contract with an HSA provider to help facilitate the opening of accounts, or will you simply allow employees to be HSA-eligible? Will you assist employees with the funding of their accounts (i.e. allow employees to make contributions via payroll deduction)? Will you make contributions to the account?
As with all benefit options, employers should endeavor to educate their employees about the eligibility requirements and costs associated with an HDHP to help them make an informed decision.
G&A Partners, one of the nation’s leading professional employer organizations (PEOs), provides its clients with tailored employee benefits packages that both meet their needs and their budgets. G&A’s team of experienced and highly qualified employee benefits specialists oversee and administer a variety of plans from top-tier carriers while also delivering open enrollment assistance and ensuring employers are in compliance with all federal and state laws (ACA, HIPAA, COBRA, etc.).
Learn more about how G&A Partners helps businesses by providing, managing and administering employee benefits by calling 1-866-634-6713 to speak with a benefits expert or visit our website to schedule a free business consultation.
This article is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.