High Deductible Health Plan
When it comes to health insurance, we’re always looking for ways to save money. That’s why more and more people are using a “high deductible health plan” (HDHP) coupled with a Health Savings Account (HSA).
These plans are also known as consumer driven health plans because they put the consumer in control of their health care funds. Really, HDHPs and HSAs give you a more efficient way to control your own medical spending.
High deductible plans are unique because they are the only types of coverage that are compatible with Health Savings Accounts. While it’s not required to open an HSA with an HDHP, it’s a great tool to help you save money tax-free and direct your own health care funds.
What is a High Deductible Health Plan?
High deductible coverage is just what the name implies; health insurance coverage with a “high” deductible. But don’t let the name scare you — generally, this refers to plans with deductibles higher than $1,200 that are compatible with Health Savings Accounts.
Every year, the Internal Revenue Service (IRS) sets the exact minimum deductible for a health plan to qualify as a “high deductible health plan.”
For 2010 and 2011, the minimum deductible amount cannot be less than $1,200 for an individual or $2,400 for a family, and the maximum out of pocket expense amount is no more than $5,950 for an individual or $11,900 for a family. These amounts can vary from year to year in accordance with IRS regulations.
The only difference that a high deductible health plan has with others is the deductible. Many high deductible plans provide preventive care coverage, emergency and hospital care, coverage for routine doctor’s visits, coverage for prescription drugs and more.
Who Should Use a High Deductible Health Plan?
With a high deductible health plan, you’re taking on more financial risk — meaning if you need a health care service, you’ll have to pay for more of the bill to hit your deductible. In other words, you’ll have to pay for most of your health care costs until your deductible is met.
But the upside is higher deductible plans have lower monthly premiums and often cover 100% of qualified expenses once the deductible has been met.
A high deductible health plan can be a good option for those who need only preventative care and do not expect to need to pay for prescriptions or frequent visits to the doctor. But, they can also make sense for someone with a chronic condition since there are often no additional co-pays and coinsurance payments once the deducible has been met.
Additionally, a small business may want to opt for this type of coverage because it is an economically feasible way to offer health insurance to employees while not needing to spend a lot in premiums.
How to Use & Contribute to a Health Savings Account
Even if you open a Health Savings Account, contribution is completely voluntary.
It works much like any savings account, but you can make tax-deductible contributions or have money taken directly out of your paycheck on a pre-tax basis. In each case, the money you contribute is income-tax free.
HSAs can be opened through any bank, credit union or other federally-approved institution as long as you’re already enrolled in a qualified high deductible health plan.
Your employer can also contribute to a Health Savings Account, and the money they provide is owned by you. Even if you leave your job, that money is completely yours to keep.
One of the greatest advantages of an HSA is that it can pay for the deductible. For example, let’s say you had a $1,200 annual deductible. You’re also saving $100 a month on your premiums because of that higher deductible. So now, let’s say you deposit that extra $100 per month into your Health Savings Account. At the end of the year, you’ll have $1,200 in your HSA, which can simply cover the entire deductible.
And if you don’t need to use your HSA funds, every penny in your account rolls over to the next year — and can earn interest.
Saving Money with a High Deductible Health Plan
All of the features and benefits of high deductible health plans with Health Savings Accounts are designed to make health care expenses more manageable for consumers. Additionally, using these plans can save the individual a lot of money overall with the interest earned and tax advantages given to deposits and qualified withdrawals.
Many consumers are more likely to watch how they spend money on health care services when they have complete control over it. Consumers are also more likely to curb unnecessary medical spending to save the contributions for future use.
This leads the consumers to be less inclined to use the most expensive medical care while attempting to get the most out of their HSA account.
Because of the high deductible limit at which the insurance starts paying for medical expenses, consumers are more inclined to pay attention to the amount of money they spend and learn about the various options available to them for their medical care.