High Deductible Health Plans (HDHPs) have become increasingly popular among small businesses looking to manage premium costs without dropping coverage entirely. But they’re not the right fit for every group. Here’s what you need to know.
How HDHPs Work
An HDHP has lower monthly premiums than traditional plans but requires employees to pay more out-of-pocket before insurance kicks in. The IRS defines an HDHP in 2026 as any plan with a deductible of at least $1,650 (individual) or $3,300 (family).
Once the deductible is met, the plan covers expenses like a traditional plan — usually with coinsurance until the out-of-pocket maximum is reached.
The Big Advantage: HSA Eligibility
Employees enrolled in a qualified HDHP can open and contribute to a Health Savings Account (HSA). This is a major benefit — HSA contributions are tax-deductible, grow tax-free, and can be used tax-free for medical expenses. Employers can also contribute to employee HSAs as a benefit.
Who HDHPs Work Well For
- Younger, healthier employee populations who don’t use healthcare frequently
- Employees who can afford to fund an HSA to cover the deductible gap
- Businesses with tight budgets that need to lower premium costs significantly
- Employers willing to contribute to employee HSAs to offset the higher deductible
Who HDHPs Can Hurt
- Employees with chronic conditions who hit their deductible every year
- Low-income employees who can’t afford unexpected out-of-pocket costs
- Families with high medical utilization
A Hybrid Approach
Many small businesses offer both an HDHP and a traditional option during open enrollment, letting employees choose what works for their situation. This costs more to administer but significantly increases employee satisfaction.
Not sure if an HDHP is right for your group? Talk to Paul — we’ll model out the numbers for your specific employee demographics.