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How to Walk Employees Through a Comparison of HDHPs vs. Traditional Plans

How to Walk Employees Through a Comparison of HDHPs vs. Traditional Plans

 

High deductible health plans (HDHPs) get a bad rap; employees hear “high deductible” and retreat to the more familiar traditional plan option. However, depending on employees’ healthcare usage and life situation, HDHPs can actually save them money and help them keep more of their paychecks.

When comparing high deductible health plans (HDHPs) against traditional plans, it’s helpful to frame the discussion around two ideas: cost and risk. Cost shows the total financial expense of each plan (premiums, copays, deductibles, etc.), while risk outlines employees’ financial responsibility in a medical emergency. Let’s look at cost first.

#1: Cost

Here’s how to help employees understand all the factors that contribute to their plan’s total expense.

Calculate Premium Differences

  1. Subtract the HDHP’s monthly premium from the traditional plan’s premium. This is an employee’s monthly premium savings under an HDHP.

If the HDHP’s monthly premium is $200 and the traditional plan’s monthly premium is $400, an employee’s monthly premium savings under an HDHP would be $200.

  1. Multiply your monthly premium savings by 12. This is an employee’s annual premium savings under an HDHP.

With the numbers above, an employee’s annual premium savings under an HDHP would be $200 x 12 = $2,400

Add HSA/FSA Contributions

  1. If you (the employer) are making contributions to the HSAs of employees covered by HDHPs, add that amount to the annual premium savings.

If you will contribute $500 to the HSAs of employees under the HDHP, add $500 to $2,400 ($2,900)

  1. If you (the employer) are making contributions to the FSAs of employees under traditional plans, subtract that amount from the annual premium savings.

If you will contribute $500 to the FSAs of employees under the traditional plan, subtract $500 from $2,900 ($2,400)

Calculate Deductible Differences

  1. Subtract the traditional plan’s annual deductible from the HDHP’s annual deductible, then subtract that amount from the number in step 4.

If the traditional plan’s annual deductible is $1,000 and the HDHP’s annual deductible is $3,000, the difference in deductibles is $2,000. Next, subtract $2,000 from $2,400 to get $400.

The number you get is the amount employees will save under the HDHP if they reach their annual deductible. If the number is negative, employees will save under the traditional plan.

Of course, this assumes employees will reach their annual deductibles. If employees are generally healthy and don’t incur many medical costs, their annual medical expenses will likely stay under their deductible (increasing the amount they’d save under an HDHP). By looking at their doctor’s bills for the last couple of years, employees can estimate how often they use medical care and whether they’re likely to reach their annual deductibles.

#2: Risk

Paying for doctor’s visits and prescriptions pickup is one thing, but what about a medical emergency? Here’s how to compare how traditional plans and HDHPs cover you in a severe injury or medical situation.

  1. Find the out-of-pocket maximum (OOPM) for each plan.
  2. Find the additional prescription OOPM for each plan, if applicable.
  3. Calculate the maximum amount of tax savings employees would receive if they contributed the maximum to an FSA or HSA, if applicable.

For 2019, employees would get $675 of tax savings from an FSA (assuming a $2,700 contribution limit) and $875 of tax savings from an HSA

  1. Find your contributions to employees’ FSAs/HSAs, if applicable.

Now, add the plan OOPM and additional prescription OOPM together, then subtract any employee tax savings and employee FSA/HSA contributions from that number. The resulting number is an employee’s total risk in a medical emergency.

These numbers assume in-network medical care. If employees go outside their network, they could face higher costs.

 

Here’s an example of calculating total employee risk (the HDHP is the HSA-qualified plan):

 Traditional PPO Plan ($30 copay)HSA-Qualified Plan
Deductible$1,000$3,000
Out-of-pocket maximum (OOPM)$4,500$4,000
Additional prescription OOPM (Rx charges)$15 - $20 per prescription$0
Tax savings (assuming you contribute the maximum amount)$675 (assuming you have an FSA and contribute $2,700 in 2019)$875 (assuming you have an HSA and contribute $3,500 in 2019)
Average employer FSA/HSA contribution$0$500
Total Risk$4,500 - $675 + Rx charges = $3,825 + Rx charges$4,000 - $875 - $500 = $2,625

In this example, you’d save $1,200 if you were under an HDHP.

 

By comparing holistic plan costs and total employee risk in an emergency, you can give employees a thorough, fact-based understanding of plans options and help them make informed decisions around their healthcare coverage. And if you’re looking for a trusted HSA partner for your employees, we’re the hands-down choice for investment HSAs. Learn more about us here or give us a call at (888) 354-0697.

Author: James Denison