Whether looking for a health insurance plan via your employer or the government marketplace, you've got a lot of decisions to make.
Your decision on what plan to go with will involve both what you can afford and what you choose to spend on. Normally, this comes down to whether you would rather put money toward your monthly premiums, or more toward your deductible.
That's where a high deductible health plan (HDHP) comes into play. One of several options you may have for your healthcare, what exactly is an HDHP, how does it work and is it worth it as a insurance option?
What Is a High Deductible Health Plan?
A high deductible health plan is, well, exactly what it sounds like. It's a health insurance plan with a much higher deductible than your average health insurance plan. The deductible for your insurance is the amount you would pay out-of-pocket before your insurance kicks in and covers your qualified expenses.
If you're wondering why someone would willingly go with a deductible that is so much higher than average, the trade-off with an HDHP is that your monthly premiums are lower than average. Choosing a high deductible health plan does not alter the specifics of what is covered under your plan, just how the money you pay out-of-pocket is allocated. Even before you've reached the limit of your deductible, you're covered for the same services.
What Is the Minimum Deductible for an HDHP?
So what exactly is a "higher than average" deductible that causes a plan to be considered a high deductible health plan?
An HDHP is defined by its deductible and its overall out-of-pocket maximum, which is how much you pay out-of-pocket for your deductible, copay and coinsurance before coverage kicks in 100%. Here is what is required of your deductible and out-of-pocket maximum for high deductible health plans:
|Deductible Minimum||Out-of-Pocket Maximum|
HDHPs and HSAs
One of the common selling points of a high deductible health plan is that they are the only form of health insurance that makes you eligible for a health savings account (HSA).
A health savings account is a pretax savings account that allows you to put away money that can be used for certain medical expenses (not every expense is HSA-eligible, though, so check your plan). Both contributions to and the interest earned in your health savings account are tax-free, but if you use the funds for medical expenses prior to age 65 you're hit with a 20% penalty. As such, even though the HSA is there to potentially alleviate the problem of the large deductible, many people choose to save using it for emergencies if they're not yet at a penalty-free age.
While there are limits to how much you're allowed to contribute to your health savings account (currently around $3,500 for individuals and $7,000 for families), your HSA rolls over from year to year. And once you hit 65 years of age, you are able to use your HSA funds tax-free as well. Tax incentives are some of the biggest positives of an HSA. For example, pretax contributions from your salary to an HSA can change your yearly income, which impacts how you are taxed.
High Deductible Health Plan Pros and Cons
As with any plan, a high deductible health plan comes with some advantages and some disadvantages. Whether an HDHP would be an advantageous choice for you depends on your financial and medical situations, respectively. And that can be a risk, as there is a level of unpredictability inherent in both.
Let's start with the positives of a high deductible health plan. An HDHP is intended to help policyholders out with what has become one of the biggest issues with health insurance: rising premiums. In exchange for having a higher deductible, you pay less per month in premiums. As premiums rise, those who live paycheck-to-paycheck struggle to meet the cost. You need health insurance, but if you're someone with a healthy medical history without a frequent need for doctor's appointments, that premium can feel even more crushing. As such, an HDHP may be helpful for those looking for lower premiums and don't necessitate consistent expensive treatments. Essentially, an individual with a history of good health but who doesn't have the income for high premiums might be the ideal candidate for a high deductible health plan.
If you can afford to put away a sizable amount of money into your health savings account, it can be an additional positive. With an HSA, you'll incur a penalty for using funds below a certain age, but it gives you an option very specifically for medical expenses as opposed to taking from other emergency funds and savings accounts.
One of the scariest things about an HDHP, however, is that medical emergencies can happen. And a high deductible can mean you take on the brunt of the costs of such an emergency before your insurance kicks in. And your deductible can be particularly high, especially if you're on a family plan.
If you're someone who has a history of needing medical expenses, an HDHP is incredibly risky. In a "pick your poison" scenario of higher deductible vs. higher premiums, you may be better off with the higher premiums in the event your continued medical costs keep adding up.
With a high deductible health plan, even your given method of making up for the high deductible - your health savings account - technically comes out of your pocket instead of being covered by insurance. If you can afford to take thousands of dollars from your bank account or yearly salary and put it into your HSA, this may not be a big deal. But not everyone can, and that can make it less of a secure safety blanket for some people.
While a younger adult without a difficult medical history could be better off with an HDHP, the older you get the riskier it is as an option. As Americans age, they are significantly more likely to require more medications and treatments and more doctor visits. With a high deductible health plan, this could mean many different pricey specialist appointments, prescriptions and treatments - and nearly all of it may be paid out-of-pocket.
Ultimately, take a look at everything about your situation - financial, medical and otherwise - before determining if a high deductible health plan is right for you. If you feel the positives outweigh the negatives for your specifics, an HDHP could be helpful. If they don't, you may be better off looking at other options.
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