How to Choose Between High-Deductible Health Plans and Traditional Health Plans

When thinking about your benefits strategy, one of the biggest decisions to make relates to the type of health insurance plan to provide employees. Employers may be considering the choice between traditional health plans versus high-deductible health plans (HDHPs) combined with a health savings account (HSA). Which is right for your employees, and why might someone choose an HDHP/HSA over a traditional health plan?

The trend towards HDHP/HSA enrollment has steadily increased in the past decade and is likely to continue. The Centers for Disease Control and Prevention’s National Health Interview Survey found that from 2007 to 2017 the number of individuals with employer-sponsored coverage enrolled in HDHPs with HSAs increased from 4.2% to 18.9%, while enrollment in traditional health care plans dropped. While this may work for some, there’s no one-size-fits-all when it comes to benefits, so providing employees with choices would be the ideal. If it’s not an option, below are some aspects to think about when determining what type of health plan would be best for your organization.

When designing a benefits plan for your organization, employee needs should be prioritized. While it may not be feasible to serve the exact benefits requirements of every individual in your workforce, you can look at employee demographics to try to meet the widest range of needs possible.

Consider the ages of your employees. Are a lot of people nearing retirement, or are they just entering the workforce? Are they somewhere in the middle, or are you working with a large, multi-generational population? An employee thinking about retirement savings might value having access to an HSA and investment options, while a younger employee who recently graduated from college may be more concerned about student loans than paying for medical costs in their golden years.

If you have access to data about benefits utilization, look at enrollment stats, spending behavior, and other information from previous years to see what is working well and where you might improve. Did employees enrolled in an HDHP open an HSA? If not, you could improve educational initiatives about HSAs and how they can offset health care costs or serve as a savings vehicle for retirement.

The HDHP/HSA option works well for some, but it may not be suitable for everyone, particularly individuals managing a chronic illness or those with more acute medical needs. In the latest Consumer Engagement in Health Care Survey, the Employee Benefit Research Institute (EBRI) found that people enrolled in traditional health plans value lower copays for medical visits, whereas those enrolled in HDHPs value lower monthly premiums. For example, a single, childless individual without any serious health conditions might prefer lower insurance premiums, but a couple expecting their first child may value lower copays for medical visits.

Before switching all employees to an HDHP/HSA model or a traditional health plan, ensure the insurance you offer will serve the needs of your workforce, and consider providing options for voluntary benefits and other consumer-directed health plans (CDHPs) to offer more support. Also make sure you are providing enough education about the health care plans and benefits you offer so people understand what exactly they are signing up for during enrollment!

Benefits make up 31% of total employee compensation on average according to a December 2020 news release by the U.S. Department of Labor, which means choosing what health insurance options to offer could have a major impact on labor costs—as well as employee satisfaction.

Employers bear the brunt of the rising cost of healthcare in the U.S. The 2020 Employer Health Benefits Survey by Kaiser Family Foundation found that the average annual health insurance premium was $7,470 for individual coverage and $21,342 for families. For those enrolled in HDHPs, the annual premiums are lower on average at $6,890 for individual coverage and $20,359 for family coverage. While the difference may not look dramatic, when you consider saving several hundred dollars per employee in an organization with a thousand employees (or more!), the savings potential can be significant.

With the HDHP/HSA model, not only can employers save on the portion of insurance premiums they are covering, but they can reduce payroll taxes. HSAs allow employees to divert pre-tax funds to pay for eligible health care expenses or amass tax-advantaged savings for health care costs in the future. For employers, the more people who open and utilize HSAs, the less payroll taxes they will owe because taxable income is reduced, which means savings for them as well as their employees.

Finally, the EBRI Consumer Engagement in Health Care Survey found that employees enrolled in HDHPs were more likely than those with traditional health plans to:

Overall, the EBRI survey indicates that individuals enrolled in an HDHP are more cost-conscious when it comes to their health care spending than those in traditional plans, which is yet another reason why offering the option of an HDHP/HSA plan could be a good choice for employers looking to reduce their annual benefits budget while giving employees more options to pay for their health care.

Employers should look to their trusted benefits consultants and benefits providers for support when evaluating the best options for health care plan offerings. A benefits broker who is continually learning about new products and plans will likely be a great ally for a large organization whose human resources department may be pulled in many directions. Likewise, a trusted benefits provider can offer support via online tools like savings calculators, employee account portals, mobile apps, customer support, and educational resources that employers can utilize to help their employees make the most of their benefits options.

In the 2019 – 2020 Willis Towers and Watson global health care report, the majority of employees surveyed said they would like to have a moderate number of choices when selecting their benefits. If you are unable to provide employees a choice between traditional health care plans and an HDHP/HSA plan, look to other voluntary benefits like wellness programs, financial planning services, tuition reimbursement, dependent care assistance programs, adoption assistance, and commuter benefits to support employee needs that may not be covered by their primary health care benefits. To learn about these voluntary benefits, turn to providers or brokers who can guide you to make the best choices for offerings that will serve your organization—to support employee needs and education as well as your benefits strategy!

You may not be able to please everyone all the time, but you can make informed decisions that work for the greater good. As always, it’s best to work smarter, not harder—leaning on experts in the field is just one way to do so when it comes to what type of health insurance plan you should choose!