High Deductible Health Plans (HDHPs) have grown in popularity in recent years. According to Mercer, 30% of all covered employees were enrolled in account-based high-deductible consumer-directed health plans in 2017.
With the increasing cost of health plans, this switch to HDHPs is part of a larger trend of employers shifting costs to their workers.
We look at what these plans are, how the deductible limits are determined, the impact of these plans and whether your business should offer one.
HDHPs are usually paired with a health savings account (HSA) that allows you and/or your employer to make tax deductible contributions to. You can later use the HSA to pay for your medical expenses, tax free.
How Deductibles and Out-of Pocket Maximums Work
A deductible is the annual amount that the patient must pay before their health insurance kicks in and starts paying. So, if their deductible is $1,000, they will pay the first $1,000 in medical bills for the year. Once they hit the $1,000 annual deductible, then their insurance will start helping for the remainder of the year. The HDHP will pay 70%, 80%, 90%, or 100% of the health care costs at that point. It depends on their individual plan. Typically, the deductible amount resets at the beginning of each calendar year.
The Out-of Pocket Maximum is the maximum amount patients are required to pay in any given year, before the HDHP covers any additional medical costs 100%. This protects them from serious financial hardship and possible bankruptcy if they have a high cost event or series of events, such as a stroke, heart surgery, or maternity.
Every year the IRS updates the deductible and out-of-pocket maximum requirements for a plan to qualify as a high-deductible health plan (HDHP). The IRS announced the rules for 2018.
The minimum HDHP deductible amount for 2018 as dictated by the IRS are:
The HDHP maximum out-of-pocket limits for deductibles/co-pays (does not include premiums) set by the IRS for 2018 are:
Participants in a qualified HDHP that meets these requirements are allowed to make contributions into a Health Savings Account (HSA). These accounts work similar to a 401(k), where employees accumulate and invest HSA funds pre-tax and can then use the money to pay for qualified medical costs.
The IRS HSA maximum contribution limits for 2018 are:
Impact of Companies Going to High Deductible Health Plans
According to a survey by the National Business Group on Health, 39 percent of large employers offer only high-deductible plans today.
In a recent Bloomberg article, John Tozzi and Zachary Tracer wrote,“Since the early 2000s, employers have mostly embraced high-deductible health plans. The thinking has been that requiring workers to shoulder more of the cost of care will also encourage them to cut back on unnecessary spending. But it didn't work out that way. In the wake of the 2008 financial crisis, many families were hard-pressed to meet their soaring health-insurance deductibles.”
Here are some statistics on the impact of HDHPs:
Patient Impact
Employer Impact
Hospital Impact
While offering an HDHP to employees will likely result in savings for the business, it is in a way pushing the costs onto the employee, especially if they're faced with a serious medical situation.
Many proponents of HDHPs argue that they're for the most part beneficial to both businesses and employees, but it does place more responsibility on the employee to make smarter healthcare decisions.
It is important for businesses that offer HDHPs to also offer education to employees on how to better take a proactive role in choosing their healthcare providers and how to best save.
As with all other health insurance decisions, it is recommended that you speak to your insurance agent about the pros and cons of offering a high deductible health plan.
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“Statements on this website as to policies and coverage's and other content provide general information only and we provide no warranty as to their accuracy. Clients should consult with their licensed agent as to how these coverage's pertain to their individual situation. Any hypertext links to other sites or vendors are provided as a convenience only. We have no control over those sites or vendors and cannot, therefore, endorse nor guarantee the accuracy of any information provided by those sites or the services provided by those vendors.”