High-Deductible Health Plan Opportunities and Challenges

Plan sponsors should consider offering a high-deductible health plan, but only after weighing the pros and cons for their workforce, according to panelists speaking Wednesday as part of an annual HSA conference held by PLANSPONSOR, which is a sister publication of PLANADVISER.

Leonard Spangher, vice president and senior health consultant at Segal, explained that an HDHP tends to be a lower cost health plan option for employers, as it allows them to pass along savings to employees in the form of lower costs for joining the health plan. 

“It tends to allow an employee to have more control over their paycheck,” Spangher said. “They’ll have more cash on hand so they can spend it, save it [or] they can put it into an HSA.” 

Kelly Conlin, managing director and chief health actuary at Gallagher, shared that a recent Gallagher survey, which included responses from more than 4,000 employers, found that 53% of all employers in 2023 offered a HDHP. However, the data showed major gaps in the number of large employers that offer an HDHP, compared to small employers. 

According to Gallagher, 74% of companies with 5,000 or more employees offer an HDHP, whereas only 39% of companies with fewer than 100 employees offer one. Conlin said this is expected, as larger and mega companies typically have the resources to offer more health plan options.  

Larger companies also tend to see more employees contributing to health savings accounts than small companies, which current law only permits when paired with an HDHP, Conlin said.   

Diverse Financial Situations 

Spangher said it is important that employers understand their employee populations. If an employer decides to fully replace their current health plan with an HDHP, it could put participants under financial stress, as high deductible exposure could be a shock to some workers—especially those who are lower-paid. With potential high costs, Spangher said changing to offering only an HDHP can also lead to employees delaying or avoiding medical care, which could make medical costs more expensive down the line. 

“Employers really need to teach employees how to save in this environment,” Spangher said. “For example, putting money from the lower payroll contributions [for the cost of health insurance] into the HSA.” 

He added that the longer an individual waits to join an HDHP, the higher the probability is of claims occurring, which could require an individual to draw down an HSA to cover those claims if they cannot afford the high deductible. 

The positives that come from offering an HSA, Spangher explained, are triple-tax advantaged: money goes into the account on a tax-free basis, grows tax-free and can be withdrawn tax-free for health care purposes. The HSA is also 100% employee-owned and portable, as it can be taken with an employee from job to job.  

Additionally, funds in the HSA roll over each year, unlike a flexible savings account where the money must be used by the end of the year. 

Restrictions on HSAs 

There are, however, some restrictions on HSAs for employers to consider. For example, Spangher explained that employees cannot contribute to the HSA once they are enrolled in Medicare, and there is a 20% tax penalty that would be applied if a distribution is used for non-health purposes while the account owner is still working. There is no additional penalty (beyond income taxes) on withdrawals once the account owner is retired.  

HSAs are also subject to non-discrimination testing, which Spangher said is important for employers to be aware of. 

Greg Fiore, senior vice president at OneDigital, said when he is advising employers on offering an HDHP, he often sees resistance from HR staff who may feel the need to advocate internally for the needs of low-paid employees because the first year with an HDHP can be extremely burdensome, as the employees and their families are trying to meet the deductible. As a result, he said better outcomes often occur when an employer offers a PPO plan option for a sub-group of employees, as well as an HDHP for other groups of employees. 

“When you choose a high deductible health plan, it is more risk or more work for the employee to navigate the system,” Fiore said. “What we traditionally find is that the employer is backing into the HDHP and the PPO plan based on their financial contribution… They find parity there, [but] that’s not rewarding the employee to take on the added risk.” 

Supplemental Health Benefits 

Since an employee is assuming more risk by signing up for an HDHP, Conlin said there are different strategies and additional benefits that employers can offer alongside the HDHP. For example, she said offering a hospital indemnity plan, an accident plan or a critical illness plan can further protect workers against higher or extraordinary health costs. 

“What that will do is enable employees to understand that if they have a certain condition that costs a lot, like cancer, that might be covered under one of those other programs,” Conlin said. “This gets [employees] more comfortable with their out-of-pocket costs.” 

Conlin said the trend of care avoidance is more frequent today than it was during the height of the Covid-19 pandemic, and she said, medical financing is another strategy that could help workers afford out-of-pocket costs. An employer would essentially pay a fee to an external vendor to make financing available  to be repaid through payroll deductions over time, enabling an employee to pay for out-of-pocket expenses over time. Conlin added that this kind of financing also could help employees paying for things like pet expenses, dental costs and more. 

Fiore added that conversations about HSAs and other health benefits should be discussed with employees at least eight weeks before open enrollment occurs in order to ensure that people are understanding the complexities of the plans and to allow them time to decide what plan works best for them.  

Conlin said using personas, or profiles that align with the characteristics of different categories of employees, is also an effective way to communicate the benefits of HSAs because it provides examples of what worked best for different subsets of employees.  

A full recording of the webinar can be watched here on PLANSPONSOR’s website.