Health Insurance HSA

CDHPs and Small Business

Consumer directed health plans (CDHP) seem like an attractive option for small businesses. CDHPs utilize high deductible health plans (HDHP) making patients pay more money out of pocket. Because of this, insurance premiums are lower. These HDHPs can be linked to Health Reimbursement Arrangements (HRAs) or Health Savings Accounts (HSAs). Since small businesses do not benefit from economies of scale with respect to the purchase of insurance, HDHPs may be especially attractive for this group.

A paper by Gates, Kapur and Karaca Mandic (2008) find this not to be the case, however. Firms employing 3-49 people are no less likely to offer high deductible health plans than are large firms–conditional on offering insurance. Midsize firms employing 200-499 workers are less likely to offer HDHPs than larger firms.

If the firm offers a HD health plan, will they offer an HSA? One may guess that small firms are less likely to offer HSAs if there are fixed costs to implementing an HSA. Small firms will have higher average costs to offering HSAs, if offering HSA is a true fixed cost and its cost to the employer is not proportional to the number of employees in the firm.

It turns out that small firms between 3-49 workers and firms with 200-499 workers are less likely to offer HSAs–conditional on offering HDHPs–than large firms with 500 or more workers. Middle sized firms with between 50 and 199 workers are just as likely to offer HSAs as large firms.

Other findings of the study include that HSAs are most popular in the Midwest and the South and, surprisingly, firms with a higher proportional of low-income workers are more likely to offer HSAs.

All Firms Firms w/ 3-49 employees Firms w/ 3-199 employees Firms w/ 200+ employees
% offer Health Insurance 61% 58% 60% 99%
% offer HD conditional on offering 14% 14% 14% 14%
% offer HSA conditional on offering HDHP 17% 16% 17% 21%


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