High Deductible Health Plans (with an HSA) for Beginners

A trend in group health insurance that’s gained leaping popularity in the last several years are Health Savings Account (HSA) plans or high deductible health plans (HDHP).  This article will give you a foundation for understanding HDHP’s with HSA’s and arm you with the facts to determine if this type of group health insurance plan is right for your organization.

So, how exactly does a HDHP with an HSA work?  In this type of plan, employees typically have a large deductible, often more than twice the amount in deductible of a traditional PPO plan.   In a HDHP, monthly premiums are typically less than in traditional plans where there is a co-pay (sometimes substantial).  The lower premium saves both the employee and company money on premiums.  However, an employee is required to then pay out of pocket for medical services and prescriptions in full until they reach their full deductible amount.  However, any funds paid toward medical care or prescriptions should be paid out of the Health Savings Account that is set up in accordance with the HDHP.  HSA accounts typically assign account holders a credit/debit card that employees should use for any medical related expenses.  On an HSA account, medical services can typically be purchased tax free. 

So you may ask how the account is funded and how can the purchases be tax free?  Well, an employer typically makes a contribution to the HSA account on behalf of the employee.  The amount typically ranges from 6 to 20% of the deductible, but is up to the employer’s discretion.  Employees will typically contribute to their HSA’s as well by payroll deduction.  If employees know they have an expensive medical event, they can increase their contributions to cover the costs.  Additionally, if an expensive emergency happens, an employee can reimburse themselves from their HSA account to cover the costs with the tax benefits.

A HDHP with an HSA is uncomfortable for some individuals to switch to, especially if they are used to having something like a $20 co-pay for their doctor visits.  This type of health plan requires employees to spend their health care dollars more wisely and to become educated health care consumers (if they want to avoid high costs).  You can think of a HDHP more like car insurance.  It’s there to help you in the event of an emergency, but is not meant for you to be dependent on it for things like oil changes or routine maintenance.  Some organizations who have this type of plan offer services through their HR department to help employees find the most cost effective services for certain procedures.  However, if you are willing to promote a culture of wellness and educate your employees on spending their health care dollars wisely, this type of plan could be cost saving and good fit for your business.