Raising Deductibles vs. Employer-Sponsored Reimbursements: Weighing the Pros and Cons

Health insurance is an integral part of employee benefits packages in the United States. However, any employer federally required to provide this compensation could admit that their costs can be burdensome.

Fortunately, high-deductible health plans (HDHPs) and health reimbursement arrangements (HRAs) represent viable alternatives that enable employers to offer practical, compliant corporate wellness programs while minimizing costs.

The Difference Card – an employer health cost containment solutions provider – explains how it compares the pros and cons of raising deductibles versus adding employer-sponsored reimbursements.

HDHPs vs. HRAs – What Is the Difference?

HDHPs are health plans with lower premiums but higher out-of-pocket costs for medical care. On the other hand, HRAs are tax-advantaged health benefits that enable employers to fund staff health premiums and qualified medical expenses up to specific limits.

HDHPs and HRAs can replace traditional health plans. You can pair the latter with exclusive provider organizations, health maintenance organizations or preferred provider organizations as you see fit.

HDHPs and HRAs are not mutually exclusive, and you can combine them to achieve your goals, such as reducing payroll cost, promoting employee wellness and ensuring talent retention.

Raising Deductibles – Pros vs. Cons

Offering HDHPs instead of traditional group health plans can be beneficial for some and bad news for others. Understand their merits and downsides to determine which individuals suit them best.

The advantages include:

1. More affordable premiums: HDHPs are perfect for budget-conscious individuals who seek adequate health insurance while contributing less. The annual premiums for employer-sponsored family health coverage jumped by 6% in 2025, eroding wage growth. An HDHP helps keep more cash in the insured’s pocket without sacrificing coverage.
2. 100% preventive care coverage: HDHPs cover in-network preventive care services. They’re usually paid by insurance companies without co-payment or coinsurance before meeting the deductible. They fit the needs of individuals who swear by proactive measures such as routine medical exams and screening tests to prevent illnesses.
3. Long-term tax savings: These plans are eligible for health savings accounts (HSAs). HSA account holders can contribute from their pretax wages, and voluntary employer contributions through payroll are tax-deductible. HSA funds are primarily for qualified medical expenses only, grow through compound interest and roll over year to year without expiration.
4. Lower total costs: Healthy people can find HDHPs cost-effective. Plans linked to HSAs allow workers to pay less monthly, reduce their income tax liability and save more consistently. These financial benefits outweigh the risk of paying high deductibles for insured individuals who rarely need nonpreventive medical care.

Some disadvantages to note are:

1. Higher up-front costs: Having an HDHP can be expensive when you need nonpreventive health care services. A higher deductible means you have to pay more cash before your insurer begins to shoulder your medical bills.
2. Greater financial risk: Many Americans are unprepared for a financial setback like a medical emergency. A health plan with a sizable deductible can make health care unaffordable even with insurance.
3. Delayed care: Expensive out-of-pocket costs can discourage individuals from seeking much-needed care. In 2024, Gallup found that 11% of U.S. adults could not afford necessary care, and the figure was more pronounced among Black and Hispanic groups. The health of people living with chronic diseases can deteriorate more quickly when the medical treatments they require are out of reach.
4. Yearly deductible reset: Paying covered health care services out of pocket this year does not lower your deductible next year, as the amount resets every 12 months. Spending thousands on health care every year without benefiting from coverage is possible with an HDHP.

Adding Employer-Sponsored Reimbursements – Pros vs. Cons

HRAs can solve the different health-insurance-related financial concerns of employers and employees, but they have limitations.

Its advantages are:

1. Controlled spending: These arrangements allow employers to set spending limits and determine the specific coverage. For example, medical expense reimbursement plans (MERPs) cover eligible expenses the insured has already paid out of pocket. “At its core, a MERP is an arrangement that helps employees offset health care costs not covered by traditional insurance,” The Difference Card explains.
2. No minimum participation rates: Some HRAs are for small businesses with few employees. Team members who decide not to use the benefit will not impact the plan for the rest.
3. Portable coverage: Employer-sponsored reimbursements can cover individual private health insurance. Workers can use the funds to pay for premiums and keep their desired plans when they change jobs.
4. Reduced taxable income: Employer contributions are tax-deductible, and team members can receive reimbursements tax-free.

Disadvantages to look for are:

1. Nonportable funds: Insured individuals stop benefiting from their HRAs the moment they leave the company.
2. Compliance risk: Business leaders have to think about the legal implications of adopting HRAs. According to The Difference Card, “all plans must comply with the Internal Revenue Service regulations under Section 105.” Integrating arrangements with other relevant health care regulations is essential to avoid breaking the law and incurring penalties.
3. Administrative burden: Managing all regulatory requirements can be arduous. Tracking transactions and validating receipts can be time-consuming. Data privacy is also a concern, as workers’ medical expenses and health insurance premiums qualify as protected health information. Mishandling such sensitive data can result in noncompliance.
4. Resistant employee attitudes: Some employees prefer traditional group health plans and refuse to switch to HRAs. People tend to stick with benefits they are familiar with and understand, so convincing team members to embrace employer-sponsored reimbursements may take time and effort.

Considerations When Embracing Alternatives to Traditional Health Plans

HDHPs and HRAs have strengths, but they are not for everyone. Keep these factors in mind during decision-making:

• Employee health needs and risk tolerance
• Pros and cons of cost sharing versus cost shifting
• Company cash flow
• Administrative capacity

Raising Deductibles vs. Adding Employer-Sponsored Reimbursements – Whose Pros Outweigh the Cons?

The question is not whether raising deductibles is better than adding employer-sponsored reimbursements and vice versa – it is whether they will offer more value to people than the status quo.

Crunch the numbers to determine whether raising deductibles and adding employer-sponsored reimbursements simultaneously or choosing one strategy over the other is more practical.

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AUTHOR: Nataly Kramer – Lead Insurance Editor at Beinsure