A high deductible health plan, or HDHP, has a higher deductible than other types of insurance plans, as the name implies.
In return for higher deductibles, these plans usually charge lower premiums than other types of health plans.
You can combine a HDHP with a tax-advantaged health savings account (HSA). Money saved in an HSA can be used to pay for out-of-pocket, qualified medical expenses before the deductible kicks in.
An HDHP can be a good, affordable health insurance option for people who are relatively healthy and don’t see doctors or receive medical services frequently.
But these plans may not be the best choice for everyone. Read on for important things to know about HDHPs.
How Does a High Deductible Health Plan Work?
When you sign up for an HDHP, you will pay most of your medical bills out of pocket until you reach the deductible (with some exceptions, explained below).
Your deductible is the amount you’ll pay out of pocket for medical expenses before your insurance pays anything.
Under current law, in order to be considered an HDHP, the deductible must be at least $1,400 for an individual, and at least $7,000 for a family.
But deductibles can be significantly higher than these minimums, and are allowed to be as high as $2,800 for an individual and $14,000 for a family.
As with other insurance plans, HDHPs come with out-of-pocket maximums. This is the most you would ever have to pay out of pocket–that includes your deductible, copayments, and coinsurance (but exclude premiums and medical costs not covered by your plan).
Out-of-pocket maximums for HDHP plans can’t exceed $2,800 for an individual and $14,000 for a family.
Despite the high deductible with HDHPs, some health care costs may be covered 100 percent even before you meet your deductible.
The government requires all HDHPs sold on the federal insurance marketplace and many other HDHP plans to cover a fair number of preventive services without charging you a copayment or coinsurance, even if you haven’t met your deductible.
How Does an HDHP Work With a Health Savings Account?
When you purchase a high deductible health plan, whether it’s through the federal marketplace, an employer, or directly through an insurance company, you may also open a health savings account (HSA).
You can put aside pre-tax income in the HSA to help pay your deductible or other qualified health care expenses. However, HSA funds typically can not be used to pay for health insurance premiums.
Earnings also grow tax-free in an HSA account, and withdrawals used to pay for qualified healthcare expenses are not subject to federal taxes. As a result, HSAs can result in significant tax savings.
Currently the maximum you can save in an HSA each year and receive the tax benefits is $3,600 for an individual and $7,200 for a family. Some employers make contributions to employee HSA accounts as part of their benefits package.
HSAs are also portable, meaning you take your HSA with you when you change jobs or leave your employer for any reason. Your HSA balance rolls over year to year, so you can build up reserves to pay for health care items and services you need later.
You may contribute to an HSA only if you have an HDHP.
What are the Pros and Cons of HDHPs?
As with any health insurance plan, there are both advantages and disadvantages of HDHPs. Here are some to consider.
Advantages of HDHPs
• Lower premiums. In exchange for the high deductible, HDHPs typically charge lower premiums than traditional healthcare plans like PPOs.
• You can combine an HDHP with an HSA. This can help you cover out-of-pocket medical expenses with pre-tax dollars, which make these costs more affordable. And, these accounts never expire.
• You get the same essential benefits and no-cost preventive care as other plans. HDHPs are required to cover the same types of healthcare expenses as other plans (after you meet the deductible). And, they offer the same no-cost preventive services as their more expensive counterparts.
Disadvantages of HDHPs
• High out-of-pocket costs due to high deductibles. You will need to pay for medical expenses out of pocket (because of the high deductible), while also paying your monthly premiums.
• A disincentive to receive care. You might be inclined to skip doctor visits because you’re not used to having such high out-of-pocket costs. Forgoing treatment, however, could cause more serious health problems down the line.
• Emergencies can be expensive. If you need unexpected care or go to the hospital, an HDHP will not pay anything until you have met your high deductible. This can mean having to come with a significant amount of cash to cover your medical bills.
HDHPs vs. PPOs
A preferred provider organization, or PPO, is a traditional type of health plan that usually has a lower deductible than an HDHP, but charges higher premiums.
With a PPO, you will typically only have to pay a copayment, or “copay,” when you see a doctor or fill a prescription.
For other medical services and treatments, you will likely have to pay out of pocket until you reach the deductible, but that will happen sooner than it would with a HDHP.
Both PPOs and HDHPs typically have a network of providers you can work with to get the best rates.
In a PPO, however, the provider list may be smaller than it is with an HDHP. To get the best rate on your care, members of either type of plan will want to be sure they are sticking to that list.
A PPO may be advantageous if you go to the doctor a lot and/or run into unexpected medical expenses, since you start to get help from the health plan much earlier in the year than you might with an HDHP.
A PPO could end up costing you more, however, if you end up having a year with low medical expenses.
So are HDHPs worth it?
With an HDHP, you will likely pay a lower monthly premium than you would with a traditional health plan, such as a PPO, but you will have a higher deductible.
If you combine your HDHP with an HSA, you can pay that deductible, plus other qualified medical expenses, using money you set aside in your tax-free HSA.
If you are young and/or generally healthy with no chronic or long-term conditions, an HDHP may be the most affordable option for you.
On the other hand, if you have a medical condition and you make frequent doctor visits, you may find you need coverage that kicks in sooner than it would with an HDHP plan.
It can be a good idea to estimate your health expenses for the upcoming year and get a rough idea of how much you will be responsible for out of pocket with an HDHP before you sign up.
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