High deductible health plans (HDHPs) set a new record for enrollment in 2021, with upwards of 55% of all American employees with employer-sponsored health plans enrolled in one. Between HDHPs and self-funded health plans, the alternatives to traditional HMOs are now more popular than HMOs themselves.
So, what’s the deal? Why are HDHPs so attractive to growing numbers of employers? There are numerous reasons for choosing an HDHP, but employer motivations generally go back to money.
Health insurance is expensive for both employers and employees. It continues to get more expensive with every passing year. Annual premium increases gradually lead employers ever closer to a point of not being able to afford health insurance. The HDHP is a way out for some, at least temporarily.
Higher Deductibles, Lower Premiums
The obvious appeal of HDHP is its lower premiums. Lower premiums are achieved by requiring higher deductibles among subscribers. But why would an employee choose an HDHP knowing that their deductible will be so much higher compared to an HMO? The answer lies in take-home pay.
For many employees, health insurance is a necessary evil. They pay for it because they cannot bear to face the alternative: having to pay all their healthcare expenses out of pocket. Subsequently, they tend to look at health insurance in terms of raw dollars and cents.
If a plan can provide adequate coverage but still give them more take-home pay, employees tend to be on board. They want their paychecks to be as big as possible. They do not give the HDHP a second thought until they actually have to start paying for services. But even then, many are savvy enough to know that nearly all of their healthcare expenses will be covered by their plans once the deductibles are met.
Adding HSA and FSA Accounts
Employers are also attracted to HDHPs when they understand that they can also add HSA and FSA accounts to the mix. Both types of tax-free accounts make HDHPs more palatable to employees concerned about having to cover higher deductibles.
The HSA (health savings account) is a tax-free account to which employees can contribute a certain amount of money annually. That money can be used to cover just about any legitimate healthcare expenses an employee might incur during the course of the year. Taxes are never paid on contributions or any capital gains an account might achieve.
The FSA (flexible spending account) is similar to the HSA with one exception: FSA funds are limited primarily to dental and vision expenses. But funds contributed to FSA accounts are still tax-free.
Combining All Three Just Works
For so many employers and employees, combining all three products just works. Perhaps that’s why Dallas-based BenefitMall encourages health insurance brokers to offer HDHP options when putting together new benefits packages. Brokerage general agencies like BenefitMall get the fact that employers need as many choices as possible. Being able to look at an HDHP, alongside an HMO, drives home the point that there are other ways to cover employees.
HMOs have been standard fare among U.S. employers since the late 1970s. They all but obliterated major medical when first introduced. But a new form of major medical, the HDHP, has emerged at a time when HMO premiums are getting beyond the reach of so many. HDHPs are quickly becoming the preferred choice for employer-sponsored health plans.
Whether you get your health insurance through an employer sponsored HDHP or HMO, you should now understand why the former is so attractive to employers. Really, it is hard to find a downside.
