How to Control Health Benefits Costs by Destigmatizing High Deductible Plans
Sweeping changes in health benefits in recent years have required many employers to reexamine or completely restructure the benefits they offer. Likewise, as more workers have become eligible for health benefits than in the past and face the possibility of penalties for lack of coverage, employees must also remain informed and strategic about the benefits they elect. Both parties have the same objective: ensure coverage needs are being met while keeping an eye on costs.
Employers who are concerned with keeping health insurance costs down are increasingly offering the option of a low premium, high-deductible health plan with a self-funding health savings account (HSA). The lower premiums and flexibility of these plans could be a smart choice for some employees. However, there can be lack of understanding around these plans, or fear that a high deductible ultimately results in high out-of-pocket health care costs. To encourage greater employee participation in them, employers can provide additional education to help their workers understand who is best suited to take advantage of these plans, the potential cost savings of electing a high-deductible plan and how to get the most out of an HSA account.
The Truth About High-Deductible Plans
According to the 2016 ADP® Health Benefits Report, health insurance premiums have risen modestly from 2014 to 2016. Along with this, eligibility continues to go up as employers comply with Affordable Care Act (ACA) requirements. In light of ACA changes, high-deductible plans, with their lower monthly premiums, can help employers keep costs down. While these plans may not be for everyone, some employees could greatly benefit from them-and even save significant amounts of money. Over the years, high-deductible plans have become associated with high out-of-pocket health care spending or an avoidance of seeking care altogether. But with more knowledge about high-deductible plans and their purpose, employees may be more inclined to sign up for them.
Low-premium, high-deductible plans, also referred to as "consumer-directed health care plans," can give individuals more control over how they spend money on health care. Lower monthly premiums mean less money spent upfront on the plan, so those saved dollars can be applied toward preventative activities, such as healthier food choices, a gym membership or things like vitamins and health supplements-whatever a particular individual feels they need to remain healthy. Additionally, many high-deductible plans do cover preventative checkups outside of the deductible.
So who can benefit the most from high-deductible plans? They can be a great option for younger workers who are healthy, may not have dependents and find the lower premium to be more affordable. ADP® data shows that for the first time ever, younger generations make up a larger portion of the workforce than baby boomers. Electing high-deductible plans, if appropriate for their health care needs, could result in substantial savings for these younger workers and their employers.
Even when an employee can afford a higher monthly premium, if they're relatively healthy, a high-deductible plan can still be a better option, especially if they can afford unexpected health care costs, such as a broken arm or other emergency, before meeting their deductible. Many employees may find this model more valuable than spending on higher premiums for health care they may or may not need to take advantage of.
Helping Employees Understand HSAs
High-deductible plans often come with eligibility to participate in an HSA, allowing employees to contribute a selected amount of pre-tax dollars from each paycheck into a separate account that can be used for health care needs. ADP Research Institute® data shows that although over 50% of large employers in 2016 offered HSAs as part of their benefits options, only about 20% of eligible employees participated in them. Employers can encourage participation by ensuring employees are aware of all the benefits of HSAs and how to properly use them.
HSAs have many advantages, and as long as employees use their accounts, there are virtually no disadvantages to using them. In addition to their pre-tax contributions, any interest accrued in an HSA is tax-free and withdrawals are untaxed as long as the funds are used toward legitimate medical expenses. 1On top of that, funds contributed to an HSA roll over from year to year, and if changing jobs, employees can usually take their account with them to a new company.
HSA dollars can be used toward a wide range of qualified medical expenses, from medications, to glasses, to therapy, and much more. For employees who elect low-premium, high-deductible plans, an HSA is a smart way to pay for everyday health expenses, as well as build a cushion for unexpected costs that may come up before a deductible is met.
To facilitate greater understanding around high-deductible plans and HSAs, employers can provide education or extra informational materials for their workers. Employees should know who could most benefit from these health insurance options, how it could save them money and how to use the plans in the best way. They should be aware of what is covered outside of their deductible and how HSAs work. Employers can consider an internal marketing campaign or communications strategy to share this information and remove concerns and misconceptions around these plans.
Increased use of consumer-driven plans could lead to lower health insurance costs for employers and individuals, as well as provide appropriate candidates for these types of plans with a better health coverage option and greater control over their expenses. Read the full 2016 ADP® Health Benefits Report to gain deeper insight into health benefits trends and how employers and employees are responding to changes.
About this report: The ADP Research Institute® used anonymous, employee-level yearly panel data from a set of employers spanning 2014 to 2016. In total, the data used for this study consisted of nearly 300 U.S.-based organizations in each year, employing roughly 700,000 employees each year. Although the set of organizations is not identical year-to-year, companies that remain ADP® clients and remain above the minimum size threshold remain in the sample, and there is great consistency year-to-year. Each organization used in this study had 800 or more employees in each year it was included. For this study, the ADP Research Institute® focused on nonunion, full-time employees.
TAGS: Benefits Administration