High deductible health plan vs copay: what's best for your employees?

Choosing the right health plan for your employees can be challenging, especially when deciding between a high-deductible health plan (HDHP) and a copay-based plan. Both options offer unique benefits, but the best choice depends on your workforce's healthcare needs and financial situation. Let’s break down the key differences between a high-deductible health plan a copay plan to help you determine which one is the best fit for your employees and your company’s budget. 

What is a high-deductible health plan?

A high-deductible health plan (HDHP) is a traditional type of healthcare plan that typically comes with a lower monthly premium. This affordable health insurance premium can take some strain off your employee’s monthly budgets but may come with a much higher deductible. HDHPs can be used in combination with a health savings account (HSA). This makes it possible for your employees to cover select medical expenses with the money they set aside tax-free in their HSA account. (Healthcare.gov). 

With an HDHP, you must meet the deductible before most services are covered, except for in-network preventive care, which is fully covered. HDHPs also protect you from catastrophic medical expenses, as once your out-of-pocket costs reach a certain limit, the plan covers 100% of in-network services for the rest of the year. (OPM.gov). The annual deductible for HDHPs can vary greatly, but you can expect to pay at least $1,650 for individuals and $3,300 for families. (Bank of America). 

Benefits of high-deductible health plans

When deciding between an HDHP and a copay plan for your employees, you’ll want to compare the different advantages each plan has to offer. One major advantage of HDHPs is the potential for cost savings. These healthcare plans typically feature lower monthly premiums, which makes it possible for plan holders to save money upfront. While these plans come with higher deductibles (meaning they'll pay more out-of-pocket before insurance kicks in), the savings can be substantial if you don't frequently use healthcare services.

By combining an HDHP with an HSA, your employees can enjoy even more benefits. With an HSA, they can set aside money on a pre-tax basis to cover qualified medical expenses such as copayments, coinsurance, and other costs. This tax-free approach makes it easier to manage healthcare expenses. 

As an added bonus, any unused HSA funds roll over year to year, enabling you to build reserves for future medical needs. Overall, HDHPs can be a cost-effective option for individuals seeking flexibility in managing their healthcare spending. (Healthcare.gov).

What is a copay plan?

It’s easy to misunderstand copay vs coinsurance vs deductible. Let’s start by focusing on what a copay is. As noted earlier, a deductible is the amount you must pay out-of-pocket for healthcare services before your insurance starts covering costs. A copay is a completely different expense. When you have a copay-based health insurance plan, once you meet your deductible, you will only pay the copay for medical services and prescriptions. Coinsurance on the other hand is the percentage of healthcare costs you pay after meeting your deductible, with your insurance covering the remaining portion. (Healthcare.gov).

Copays are fixed amounts that can vary by service. For example, a doctor’s office appointment tends to have a lower copay than an emergency room visit. If you haven’t met the deductible, you pay the full amount for the visit. 

Also known as copayments, healthcare plans with lower monthly premiums typically have higher copayments. If a plan participant is healthy, they may choose a lower monthly premium in the hopes that they will only use their plan in emergencies. If someone has ongoing medical needs, they may find a plan with a higher monthly premium that actually saves them money by lowering the cost of their copayments (Healthcare.gov). 

Benefits of copay plans

Some of your employees may prefer copay plans because they are easier to budget for regular medical expenses. With fixed copays for doctor visits, prescriptions, and other services, employees know exactly what they’ll pay upfront without needing to meet a high deductible first. This immediate-cost coverage provides peace of mind that they can get the care they need without hurting their budget, especially for those who require frequent care or medications.

When each plan type makes sense

How do you know which plan type is right for your workforce? Let’s address some scenarios in which each one might be a good fit:

• HDHP: This plan type is best for generally healthy individuals who don’t expect frequent medical visits and are comfortable paying higher out-of-pocket costs before insurance kicks in. It is also ideal for those who want to save on premiums and can use an HSA to cover medical expenses.

• Copay plan: A copay plan is more suitable for individuals with ongoing medical needs, such as regular doctor visits, medications, or treatments. With this plan, you pay a fixed amount (copay) for services, which helps you predict healthcare costs without worrying about a high upfront deductible.

Employers should consider their employees’ healthcare needs to choose the most appropriate plan. If employees are generally healthy, prefer lower premiums, and can benefit from tax savings through a Health Savings Account (HSA), an HDHP may be the better choice. However, if many employees have ongoing medical needs and value predictable costs for routine care, a copay plan might be more practical. It can be helpful to survey employees to see which type of plan the majority of your workforce would prefer. 

Important questions to ask before committing to a plan

Before committing to a healthcare plan for your employees, consider asking your insurer these questions to gain valuable insight:

• What are the overall monthly premiums, and how do they impact the company’s budget and employee contributions?

• How does the plan's deductible compare to the medical needs of the employee population?

• What are the copays or coinsurance rates for routine care, medications, and specialist visits? Are they manageable for employees?

• Are the company’s preferred healthcare providers and networks included, and what are the out-of-network costs?

• Does the plan provide comprehensive coverage for services most used by employees, or are there notable exclusions?

• What additional benefits, such as wellness programs or preventive care incentives, are offered to support employee health?

Still unsure which plan type is right for your company? Sign up for a free demo of Thatch and see how we can help you find the perfect plan.