High Deductible Health Insurance Explained.
Is a High Deductible Insurance Plan the Right Fit for your Lifestyle?
A High Deductible Health Insurance (HDHP) policy is a type of health insurance plan that features a higher deductible than traditional health insurance policies. HDHPs are designed to have lower monthly premiums, but require individuals to cover more of their upfront medical costs through a higher deductible. As a reminder, the deductible is the amount that the policy holder needs to pay “out-of-pocket” for covered medical expenses before your insurance coverage begins to pay for certain services.
High Deductible plans can be an attractive option for those who are generally healthy and don’t anticipate frequent doctor visits or medical expenses. By accepting a higher deductible, policy holders can pay reduced monthly premium costs compared to other plans in the marketplace. HDHP plans are positioned as a way to maintain health coverage while freeing money in your budget for other financial goals or expenses. However, it’s important to note that while you may pay less in premiums, you’ll be responsible for higher out of pocket expenses if you do need medical care.
Below we’ve put together are some key characteristics of High Deductible Health Insurance policies to keep in mind as you review your insurance options:
1. Higher Deductibles: The defining feature of a HDHP is its higher deductible compared to other types of health plans. The deductible is usually significantly higher than what you might find in a more traditional plan. This means that you will need to pay a larger amount for medical expenses before your insurance starts to cover costs.
2. Lower Premiums: Because HDHPs come with higher deductibles, they typically have lower monthly premiums. This can be attractive to individuals or families who want to reduce their monthly healthcare expenses.
3. Catastrophic Coverage: HDHPs often provide coverage for catastrophic events, such as serious illnesses or accidents, once the deductible is met. This means that while routine medical services might not be covered until you’ve reached the deductible, major medical expenses are protected against after the deductible has been satisfied.
4. Health Savings Account (HSA) Eligibility: Many HDHPs are compatible with Health Savings Accounts (HSAs), which are tax-advantaged accounts that allow you to save money for qualified medical expenses on a pre-tax basis. Contributions to an HSA can be deducted from your taxable income, and the funds in the account can be used to pay for medical expenses tax-free. HSAs can provide additional savings and financial flexibility.
5. Preventive Services: Even with an HDHP, certain preventive services, like vaccinations and screenings, are often covered at no cost to you. This is due to requirements set by the Affordable Care Act so check your policy to see what preventative services are included.
6. Out-of-Pocket Maximum: HDHPs typically have an out-of-pocket maximum, which is the maximum amount you would have to pay in a given year for covered medical expenses, including deductibles and co-payments. Once you reach this limit, the insurance plan covers 100% of covered expenses for the remainder of the year.
High Deductible Health Plans can be a good choice for individuals or families who are generally healthy and do not require frequent medical care. They can also be beneficial for those who want to take advantage of an HSA to save for future medical expenses while enjoying potential tax benefits. However, it’s important to carefully consider your healthcare needs, financial situation, and risk tolerance before choosing a HDHP, as the higher deductible could result in significant out-of-pocket costs in the event of a medical issue.
