Is It a Bad Idea to Have a $5,000 Deductible Plan for My Employees?

Let’s be real—choosing a health insurance plan for your small business feels like trying to fix a vintage car without the manual. You’re staring at terms like “deductibles,” “premiums,” “HSAs,” and “SHOP Marketplace,” and it’s enough to make you want to pull your hair out. One question I get a lot is whether a high deductible health plan (HDHP) with a $5,000 deductible is a good choice for employees. So, what’s the catch? Is it cost-effective, or a setup for employee frustration and unexpected bills? Let’s break it down.

Understanding the True Cost Drivers of Health Coverage

Before you jump on the HDHP train, it’s critical to understand what you’re actually paying for—and what your employees will face when they use the insurance. When you see plans with a deductible of $5,000, that means your employees must pay the first $5,000 of their health costs out-of-pocket before insurance kicks in.

Sounds cheap on paper, because the premiums—the monthly payments—are usually lower. For example, at the time of writing, a typical small-group plan might cost between $200 and $300 per employee per month on the HealthCare.gov's Small-Group Health Plans or the SHOP Marketplace. HDHPs tend to be right at the lower end of that premium spectrum.

But is it actually worth it?

If your employees are mostly healthy and rarely use medical services, an HDHP can save everyone money in premiums. However, the trade-off is a big financial risk in the event of a major illness or accident. No insurance is truly cheap—you're just deciding whether to pay more month-to-month or more out-of-pocket when something happens.

High Deductible Plan Pros and Cons

Pros:
Lower monthly premiums mean less expense for your business on a monthly basis. Plans often pair with Health Savings Accounts (HSAs), which help employees save pre-tax dollars for medical expenses. Encourages cautious use of medical care by employees, potentially lowering frivolous claims.
Cons:
High out-of-pocket costs can lead employees to delay necessary care. Financial strain if unexpected health crises occur, negatively impacting morale. Not ideal for lower-income employees or those with chronic conditions.

Are HDHP Plans Good for Employees?

The short answer: It depends on your workforce. But here’s the rub—many small business owners make the mistake of not getting employee input before choosing a plan. This is like picking an engine for your car without asking the driver whether they want speed, fuel efficiency, or cargo space.

Gather feedback from your employees about their health care needs and financial situations. If you have a younger, healthier team, HDHPs might make sense. But if you employ people with families or ongoing medical needs, that $5,000 deductible could be a dealbreaker.

Comparing Small Business Health Insurance Options

Plan Type Monthly Premium Deductible Best For Drawbacks Traditional Group Plan $250-$350 $500-$1,500 Employees expecting regular care, chronic conditions Higher monthly costs, less control over spending High Deductible Health Plan (HDHP) $200-$300 $2,900-$5,000+ Healthy employees, lower monthly costs High out-of-pocket risk, potential deferred care Health Reimbursement Arrangement (HRA) Varies (business-funded) Plan dependent Small businesses wanting flexibility and cost control Administrative complexity, less common

The Pros and Cons of Traditional Group Plans vs. HRAs

Traditional small-group health plans are what most people think of when they hear “employer health insurance.” You pay a set premium each month and get a defined set of benefits with copays and deductibles. Easy to understand, but usually expensive.

On the other hand, an HRA (Health Reimbursement Arrangement) lets employers reimburse employees tax-free for medical expenses, including premiums for individual plans. The Kaiser Family Foundation notes that HRAs have been growing popular for small businesses due to their flexibility and potential cost savings.

So, what's the catch? HRAs require more administrative work and clear communication. But they can let you balance the budget better and tailor benefits to your staff’s real usage.

How the SHOP Marketplace and Tax Credits Work

As a small business (< 50 employees), you have an option to buy insurance through the SHOP Marketplace. This platform allows you to compare small-group health plans side-by-side.

The real kicker is potential small business health care tax credits provided by the IRS for best health insurance for llc businesses with fewer than 25 full-time equivalent employees and average wages under $58,000 (adjusted annually). These credits can cover up to 50% of your premium costs, which can make even a traditional plan more affordable.

But this only applies if you shop through the SHOP Marketplace.

Many small businesses skip SHOP because it feels complicated or limited in plan options, but it’s worth exploring—especially if you want to avoid blindsiding your budget with premiums that spike unexpectedly.

Balancing Premiums and Deductibles: What Does That Even Mean?

Think about your car insurance. Do you want to pay a high monthly bill and barely pay anything when you get in an accident? Or do you want a low monthly bill but hand over a big chunk of cash if something happens? It’s a similar scenario with health insurance premiums and deductibles.

High monthly premiums + low deductibles mean predictability but higher ongoing expenses. Low monthly premiums + high deductibles mean you’re taking a bet on not needing care, but risk big bills.

For a $5,000 deductible plan, you’re picking the latter.

Common Mistake: Ignoring Employee Input

This one drives me nuts. So many small business owners pick a plan in a vacuum, then wonder why morale dips or employees grumble about health benefits. Employee input isn’t just HR fluff—it’s a practical necessity.

Conduct a simple survey or hold a casual meeting to ask what matters most: Lower premiums? Lower deductibles? Access to specific providers? For many employees, financial predictability and peace of mind trump a tiny monthly savings.

Bottom Line: Is a $5,000 Deductible Plan Right for Your Employees?

If you’re looking at a high deductible plan primarily because it has the lowest monthly cost between $200-$300 per employee, be sure to stress-test this decision with a clear-eyed understanding of who your employees are and what they need.

Young, healthy employees who rarely hit the doctor? This could work. Employees with families or chronic conditions? You might be setting them up for trouble. Remember the tax credits available through the SHOP Marketplace and don’t ignore HRAs as a versatile alternative. Get employee buy-in before locking in any plan.

In my experience consulting with dozens of micro-businesses, the best plans are the ones that balance reasonable premiums with manageable deductibles—giving peace of mind without blowing your budget.

And if you ever feel overwhelmed, don’t hesitate to get help from an unbiased advisor (not a slick broker pushing the fanciest plan). It’s like choosing the right tires for your car—you want safe, reliable options that fit your drive and your wallet, not the shinier model you don’t need.