High Deductible Health Plan Cost & Savings

High deductible health plans (HDHPs) are a popular option for employers and employees who want to manage health coverage while saving on costs. For benefits brokers, CHROs, CFOs, and decision-makers at companies with 20–500 employees, understanding HDHP cost structures, savings potential, and tax implications is essential. This guide covers HDHP costs, savings opportunities, and the details of reimbursements—answering the common questions: are reimbursements taxable and are reimbursements taxed.

What Is a High Deductible Health Plan

A high deductible health plan is a health insurance policy with a higher-than-average deductible and lower monthly premiums. In 2025, the IRS defines an HDHP as a plan with a minimum deductible of $1,650 for individuals and $3,300 for families. The maximum out-of-pocket limit is $8,300 for individuals and $16,600 for families. These plans are often paired with Health Savings Accounts (HSAs), which allow for tax-advantaged savings to pay for qualified medical expenses.

Why Are HDHPs Popular Among Employers and Employees

Cost Savings on Premiums

HDHPs offer lower monthly premiums compared to traditional plans. Employers can reduce their health benefit spending, and employees see smaller paycheck deductions. For companies managing tight budgets or looking to maximize benefits per dollar, this premium reduction can lead to substantial annual savings.

Empowering Consumerism

HDHPs encourage employees to be more cost-conscious. With a higher deductible, employees are more likely to shop around for healthcare services, ask about costs, and avoid unnecessary treatments. This behavior can help reduce overall healthcare spending for both the employer and the employee.

Tax Advantages

When paired with an HSA, HDHPs offer strong tax benefits. Contributions to an HSA are made pre-tax, grow tax-free, and can be withdrawn tax-free for qualified medical expenses. Employers can also contribute to employees’ HSAs, further enhancing the value of the benefit.

Breaking Down the Costs: Premiums, Deductibles, and Out-of-Pocket Maximums

Premiums

• HDHPs usually offer premiums that are 20–40% less than those of PPO or HMO plans with lower deductibles.
• By switching to HDHPs, employers can reduce annual health insurance expenditures, freeing up budget for other benefits or compensation.

Deductibles

• Employees must pay more out-of-pocket before insurance coverage begins. In 2025, this means at least $1,650 for individuals and $3,300 for families.
• Most HDHPs cover preventive care at 100% before the deductible is met, including annual checkups, screenings, and immunizations.

Out-of-Pocket Maximums

• Once the out-of-pocket maximum is reached ($8,300 for individuals, $16,600 for families in 2025), the plan pays 100% of covered in-network expenses for the rest of the year.
• This cap provides peace of mind for employees facing serious illness or injury.

How HDHPs Drive Savings

For Employers

• Lower premium contributions mean employers pay less toward premiums, allowing for budget reallocation or increased HSA contributions.
• Employees tend to use less healthcare when they are more aware of costs, resulting in fewer claims and lower renewal rates.

For Employees

• Employees pay less each month, which can be especially beneficial for those who are healthy and use minimal healthcare.
• Employees can save pre-tax dollars for future medical expenses, reducing their taxable income and building a financial safety net.
• HSAs are owned by the employee and move with them if they change jobs.

Real-World Example

A mid-sized company with 100 employees switches from a traditional PPO to an HDHP. The average monthly premium drops from $600 to $400 per employee. Over a year, the company saves $240,000 on premiums alone (100 employees × $200 savings × 12 months). If the company contributes $1,000 per employee to their HSAs, it still nets $140,000 in savings while offering a valuable new benefit.

Are Reimbursements Taxable Understanding the Tax Rules

Health Reimbursement Arrangements (HRAs) and ICHRAs

Employers can use Health Reimbursement Arrangements (HRAs), including Individual Coverage Health Reimbursement Arrangements (ICHRAs), to reimburse employees for health insurance premiums and qualified medical expenses. When set up according to IRS rules, these reimbursements are not taxable for the employee or the employer.

Key requirements for tax-free reimbursement:

• The plan must be a formal, IRS-compliant HRA or ICHRA.
• Reimbursements must be for qualified medical expenses or health insurance premiums.
• Employees must provide proof of expenses (receipts, invoices).
• Any excess reimbursement must be returned to the employer within a reasonable timeframe.

Are Reimbursements Taxed in Other Situations

If an employer provides a healthcare stipend or reimburses expenses outside of a formal HRA/ICHRA, those payments are considered taxable income. Employees pay income tax on these amounts, and employers must pay payroll taxes.

Summary Table: Tax Status of Reimbursements

HDHPs and Health Savings Accounts: Tax Benefits in Action

How HSAs Work

• Employees and employers can contribute pre-tax dollars up to the IRS limit ($4,150 for individuals, $8,300 for families in 2025).
• Funds in the HSA grow tax-free.
• Withdrawals for qualified medical expenses are not taxed.
• The HSA stays with the employee, even if they leave the company.

Why Pair an HDHP with an HSA

• Employees can save for current and future medical expenses.
• Employers can use HSA contributions as a recruitment and retention tool.
• Both parties benefit from reduced payroll and income taxes.

Who Should Consider an HDHP

HDHPs are best suited for:

• Younger, healthier employees who rarely use medical services and want to pay less each month.
• Employees who want to save for future healthcare costs using an HSA.
• Employers seeking to control benefit costs without sacrificing coverage quality.

However, employees with chronic health conditions or high expected medical costs may find the higher deductible and out-of-pocket maximum challenging.

Common Concerns and Misconceptions

Do HDHPs Mean Lower Quality Care

No. HDHPs must meet the same coverage standards as other plans under the Affordable Care Act, including preventive care at no cost to the employee.

Will Employees Avoid Necessary Care

Some studies suggest that higher out-of-pocket costs can lead to delayed or avoided care. Employers can help by educating employees on preventive care coverage and the benefits of HSAs.

Can HDHPs Be Paired with Other Benefits

Yes. HDHPs can be paired with HSAs, HRAs, and ICHRAs. Employers can also offer supplemental insurance (like accident or critical illness coverage) to help offset the deductible.

Best Practices for Employers and Brokers

• Offer clear communication about how HDHPs work, including deductible amounts, out-of-pocket maximums, and preventive care coverage.
• Encourage employees to contribute to their HSAs and explain the tax benefits.
• Consider using an ICHRA platform like Venteur to give employees more choice and flexibility in selecting their health coverage.
• Track plan usage and employee satisfaction to ensure the HDHP is meeting workforce needs.

Conclusion

High deductible health plans offer a way for employers and employees to save on healthcare costs while still providing solid coverage. When paired with HSAs and administered through compliant HRAs or ICHRAs, HDHPs unlock tax advantages and empower employees to take control of their healthcare spending. Understanding the tax treatment of reimbursements—knowing when they are taxable and when they are not—is key to maximizing the value of these plans. With the right strategy and education, HDHPs can benefit both companies and their teams.

For more information on how Venteur can help your organization optimize health benefits with flexible, compliant, and cost-effective solutions, visit our platform and connect with our expert team.