Are HDHPs Falling Out of Favor?
Recently, a specific type of healthcare coverage designed to decrease premiums has become popular: high deductible health plans (HDHPs). In 2021, these plans hit the peak of their popularity, with more than half of all American workers covered by an HDHP. HDHPs allow members to save for healthcare-related expenses pre-tax using Health Savings Accounts (HSAs), but there is a catch, and it’s right there in the name.
High deductible health plans come with low premiums — but that comes at a price. To compensate for the low premiums, these plans have higher deductibles than traditional health insurance. That means the insured are responsible for more of the cost of their own care. What qualifies as a “high deductible” will change yearly, but in 2024, the minimum annual deductible was $1,600 for individuals and $3,200 for families. Despite the increasing popularity of these plans, I believe we are starting to see a shift away from plans that put much of the burden on covered members.
The rising (and falling) popularity of HDHPs
Data from a ValuePenguin study shows that in 2021, 55.7% of Americans were covered by an HDHP. These numbers have been on the rise for nearly a decade. Back in 2012, just 34.3% were covered by HDHPs. The same research showed that enrollment levels rose the most in 2014 and 2017— by 16% and 14.2%, respectively.
Lower premiums and pre-tax savings may sound enticing, but we are starting to see unintended consequences of these types of plans. For instance, it’s thought that these plans may lead to people putting off care — and that may be especially true for vulnerable populations. For example, a study found “that among individuals with cognitive impairment, those with HDHPs experienced some financial access problems, such as affording medical care, follow-up care, and specialists, than those without HDHPs, indicating that HDHPs might have unintended consequences for health care usage.”
These consequences could explain why ValuePenguin also found that in 2022, “after record-high enrollment, the percentage of private-sector employees enrolled in high-deductible health plans fell for the first time since 2013.” The decrease was modest, falling to 53.6%, but it could be the start of a trend.
A growing pushback against HDHPs
HDHPs may have once seemed like the perfect solution to employers’ problems. Rising healthcare costs impact an organization's bottom line, but benefits are also integral to attracting employees, at least in the U.S.
However, HDHPs are purposely designed to increase patients’ financial exposure. High cost-sharing may sound like a good way to make people more conscientious consumers, but as we mentioned, it can have unintended consequences. The Commonwealth Fund found that 46% of survey respondents said they skipped or delayed care because of the cost. Meanwhile, 42% said they had problems paying medical bills or were paying off medical debt. Nearly half (49%) of respondents would be unable to pay an unexpected $1,000 medical bill within 30 days, including 68% percent of low-income adults, 69% of Black adults, and 63% of Latinx/Hispanic adults.
When employers develop health plans for their staff, they must remember that the goal of the employee benefit is to attract and retain top talent. If we create plans that ultimately create financial hardship for the staff, we are missing the mark. Human Resource experts need to consider the average wages paid for their staff, demographics, and geographic challenges before making a decision to go all in on an HDHP strategy.
There are other impacts to consider as well. If, as the research shows, employees put off care, it can lead to poorer health, lost productivity, and often worse outcomes. Perhaps most ironically, these plans do not even have the intended impact on cost. One of the goals of leveraging an HDHP is to create a concept of consumerism and help decrease the overall cost of healthcare; however, these plans might have the opposite effect. Hospitals and doctors' offices now have to spend extra time and money chasing debts from patients due to these HDHPs, which ultimately raises the cost of healthcare and gets passed down to the employer via higher premiums.
If one of the goals of health insurance is to prevent medical debt and incentivize patients to seek care promptly, it seems we may be failing even at record coverage rates. One of the questions we frequently urge our clients to consider before offering an HDHP is the average pay of their employees.
Alternatives to HDHPs
While HDHPs are not likely to go away anytime soon, there are ways for employers to improve health insurance coverage for their teams without completely abandoning this popular plan type. Here are Allegiant’s suggestions:
Change the guidelines for a qualified HDHP to allow for lower deductibles, making them more affordable for employees on the lower end of the pay scale.
Change the guidelines for qualified HDHPs to allow for copays for common services vs. forcing patients to meet a deductible before co-pays kick in. Things like primary care, specialist care, urgent care and emergency room should be allowed to have a copay vs. a deductible. Hospitalizations would still be subject to the high deductible.
Meanwhile, ValuePenguin research found that large employers already offer more coverage options than during HDHP’s heyday. In 2018, 22% of employers with 20,000 employees or more offered only HDHPs, but that dropped to 9% in 2022. That change could explain why the overall number of people covered by HDHPs is dropping for the first time in years. Savvy consumers may be choosing different plans when they are available, though others may still be opting for what seems like the least expensive coverage.
At Allegiant Global Partners, we typically deal with international NGOs and other nonprofit organizations with fewer than 20,000 employees. Consulting with an experienced broker who understands the needs of your specific organization and employee population is the best way to find a healthcare solution that balances your population’s needs with costs.