6 Ways to Enhance Your High-Deductible Health Plan

Whether you offer a PPO plan or an HSA-qualified high-deductible health plan, you may be looking for ways to enhance your plan when hiring employees. One of the levers employers have to reduce cost is increasing plan deductibles. While that change can decrease premiums, it often comes at the expense of the member’s pocket. Many employers hesitate to shift costs to employees and their families, especially if it impacts them while dealing with a health issue.

Here are six ways you can re-balance the scale between premium savings and member costs when moving to a higher deductible.

Supplemental Plans

Supplemental plans are an easy way to offer an enhanced benefit. The member files a claim separate from the medical plan and the funds can be used for deductibles or to help pay living expenses while they receive treatment. Usually, these plans do not conflict with HSA rules preventing first-dollar coverage because of the way they’re set up. The following are some common types:

• Accident. These plans offer “first-dollar” benefits for accidental injuries at a relatively low cost. These are great for families with children.
• Critical illness. These policies pay a lump sum benefit if you’re diagnosed with several key conditions known for high treatment costs like cancer, heart conditions, and stroke. The member chooses the amount of coverage in increments usually starting with $5,000.
• Combined supplements. Accident and critical illness policies can be offered based on a traditional schedule of benefits, or as a combined policy that pays according to the diagnosis code. For example, a policy through Ansel (formerly Brella) covers more than 13,000 different conditions in three categories: moderate, severe or catastrophic. Payment amounts in each category are customized by the employer when offered.
• Hospital indemnity. This type of coverage pays a benefit if you have an inpatient hospital stay in flat dollar amounts per day. The member can use the funds to pay out-of-pocket or living expenses if they’re not able to work.

Employers can choose to contribute towards the cost of coverage for supplemental policies or offer them as voluntary (i.e., paid for by the employee) thereby giving employees choices. If voluntary, the employer’s only expense is the time to manage enrollments and billing.

Health Savings Account (HSA) Contributions

HSA-compatible plans require the member meet their deductible before any other claims are paid with the exception of preventive services. If a member is covered under an HSA-compatible healthcare plan and they don’t have any other “first-dollar coverage,” they may be able to contribute to an HSA up to the annual IRS limits. This year, many carriers have introduced “preventive prescription coverage” for chronic conditions that don’t require the member meet their deductible in order to fill a maintenance medication.

The funds are tax free to both employer and employee as long as they are used for qualified health expenses (medical, prescription, dental, vision, and some prescribed over-the-counter items). Please note, the employer is not responsible for monitoring how employees utilize funds once they are contributed to the HSA.

With this in mind, employers can consider offering an HSA contribution to help employees gain an understanding of how they work. It doesn’t have to exactly match the change in the deductible or out-of-pocket either. The amount can also vary based on single or family coverage. Employees can contribute to an HSA on their own as well. Contributions are tax free to both the employer and employees.

In some cases, just offering an HSA to employees and allowing them to make their own contributions while educating them on the tax benefits is a win-win.

Health Reimbursement Arrangement (HRA)

An HRA is an employer-funded plan that allows employees to be reimbursed for qualified medical expenses, most typically, the in-network deductible. These are very similar to Medical Expense Reimbursement Plans, or MERPs, which came before HRAs but were somewhat hampered by ACA rules.

Employers offering an HRA pair them with a high-deductible plan that costs less in premium. They may even keep copays for office visits and prescription drug copayments in place. However, the deepest savings are often with HSA-compatible plans. Some employers even “stack” an HSA and HRA, with the HRA kicking in after the IRS minimum deductible amounts.

In a typical HRA, if a member has deductible expenses over a certain amount, the HRA will reimburse them up to a certain limit. But if there aren’t any deductible expenses, the employer doesn’t pay for the higher cost plan.

Gap Plans

A gap plan is like a fully insured version of the HRA described above. It’s a supplemental plan that helps pay medical costs. Implementing a gap plan can be a creative solution to lower costs by offering a higher deductible plan, while still offering employees first-dollar coverage to offset their high medical deductible. The advantage to a gap plan is that it can be made available to owners that may be disqualified from HRAs. Gap plans are also permissible to be purchased only for management or executives.

Flexible Spending Account (FSA)

An FSA is a type of account similar to an HSA that enables employees to set aside pre-tax dollars throughout the year to help pay for qualified health expenses. Employers can contribute to them as well. Tax savings are typically $20 to $25 for every $100 placed in the FSA account. The key difference between an HSA and an FSA is that the full annual limit of the FSA is available day one while the HSA is like any other bank account where you must have the funds available when paying a bill. There are two types of FSAs:

• Healthcare FSAs – covers medical, dental, vision, prescription, and certain other qualified health expenses
• Limited healthcare FSAs – only covers dental and vision expenses, allowing them to be paired with HSAs; expand the tax savings available to employees.

FSAs have a “use it or lose it” provision in that any unused funds at the end of the year are not returned to the member. New laws permit rollovers of up to $640 in calendar year 2024. Unused funds are typically retained by the employer.

Payroll Deduction Loans

Some payroll companies and standalone vendors offer limited loans to employees for up to four types of unexpected expenses that employees can encounter: healthcare, pet care, and home or car repair. Some vendors help employees negotiate the portion of their healthcare bills or with collection agencies as well. The healthcare payroll loan can coordinate with an HSA, is funded by the employee via payroll deductions, and doesn’t disqualify member contributions as it’s not considered “first dollar coverage.” If the employee leaves before the loan is repaid, the vendor will pursue payment directly, leaving the employer with no financial risk when offering the program.

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Below is a table outlining basic funding, tax, compliance, and ease of administration considerations for each of the options. Moving up medical deductibles and out-of-pocket limits are common renewal strategies to offset annual increases. However, there are multiple ways to help employees if they have medical expenses, either through reimbursement plans or via tax-free vehicles that allow them to “buy up” to better benefits.

TYPE	Supplements	Health Savings Account Contributions	Health Reimbursement Arrangement	Flexible Spending Accounts (FSA)	Gap Plan
Employer- or employee-funded?	Either/both (usually employee)	Either/both	Employer only	Either/both (usually employee)	Either/both
Compliance considerations	None	For the most part, employee’s responsibility. See IRS publication 969.	PCORI filing and fee mid-year SPD and SBC for HRA	Annual limits Rollovers	None
Is it tax free?	Yes	Yes	Yes, to employer. Some owners may receive reimbursements as taxable income.	Yes	Yes
Can you self-administer?	No	Yes	Yes, if kept simple.	Not recommended if you want to offer a debit card for ease of access to funds.	No, must be fully insured.

To learn more about these benefits and strategies, contact your ARC client advisor.