High-deductible health plans (HDHP) are less popular than they once were. With many other possibilities on the ACA health insurance marketplace, Americans are finding other affordable options to cover their healthcare expenses. Yet, an HDHP still has a lot to offer.
You’ll find them on the health insurance marketplace nearly everywhere in the country. But if you’re unfamiliar with this type of health insurance, you may have some questions. That’s why we created this HDHP guide with all the answers you’re looking for.
So, what is a high-deductible health plan, and is it the right choice for you? Read on and find out.
What Is A High Deductible Health Plan?
A high-deductible health plan, or HDHP as it’s known in the insurance industry, is a type of health insurance plan. It offers lower monthly premiums than most other plans but also carries a higher deductible than most.
An HDHP seems like the obvious choice for those who don’t want the burden of high monthly premiums. The premiums are indeed more affordable. However, it may not be ideal for everyone. Although you’ll pay less monthly, you’ll pay more out of pocket before the insurer pays.
That said, an HDHP has a distinct advantage besides the lower monthly premiums. It is the only health insurance plan that you can pair with a health savings account (HSA). And an HSA helps you save your pre-tax money towards medical expenses.
Therefore, an HDHP has some distinct advantages and disadvantages on its own.
Advantages Of HDHPs
- You’ll enjoy lower monthly premiums
- Can be paired with an HSA
Disadvantages Of HDHPs
- HDHP plans have higher deductibles than most other health plans
- You may be put off necessary care because of the higher deductible expense
When paired with an HSA, these disadvantages are significantly reduced, so you may find that an HDHP still works for you.
Who Is Eligible For An HDHP?
To be eligible for an HDHP, you must meet specific criteria. What these are will depend on which insurer you choose. Typically, you must enroll in a health savings account (HSA). This tax-advantaged savings account lets you set aside money for certain medical expenses.
However, there’s a caveat: Not everyone is eligible for an HSA account. It has its own criteria.
The IRS plays a role in health insurance in the US. According to the IRS, the following conditions must be met to be eligible for an HSA:
- HDHP coverage that meets the IRS’s minimum deductible and maximum out-of-pocket limits. You can only have an HSA if you are on an HDHP plan. Only HDHP plans qualify for an HSA.
- Not listed as a dependent on anyone’s tax return, as this implies that their health insurance plan covers you. This is the same as the rule for all ACA-compliant health insurance.
- No other health insurance coverage that pays for benefits covered by your HDHP. This includes government-subsidized healthcare programs such as Medicare or Medicaid.
How Does A High-Deductible Health Plan Work?
An HDHP is an HSA-eligible plan. By law, HSA-eligible plans must set certain minimums and maximums.
It must set a minimum for a deductible. This is the amount you must pay for health care items and services each year before your HDHP plan starts to pay. It must also set a maximum on out-of-pocket costs. This is the most you’ll pay each year if you need further health care.
When paired with an HSA, these tax-free savings help you pay those extra costs.
So, this is how it works. On an HDHP, you pay all your healthcare costs until you reach the plan’s in-network deductible. This is typical of most health insurance.
After reaching the deductible, you may still have some out-of-pocket costs. You and the insurer may split the costs of further post-deductible health care services. It’s called coinsurance, and this, too, is typical of many insurance plans.
When you reach the plan’s in-network out-of-pocket maximum, your HDHP covers the rest for the rest of that year. Then the following year, it starts all over again.
To comply with the Affordable Care Act (ACA), an HDHP must meet the ACA’s requirements for out-of-pocket expenses. The ACA sets a yearly maximum, and all health insurance plans are expected to meet those limits. The limits set by the ACA are not necessarily the same as those set by the IRS.
If an HDHP plan meets those ACA requirements, it can be listed on the ACA marketplace. ACA health plans are also expected to offer ten essential health benefits. Some plans may offer more, but they all have to offer these ten set out by the ACA.
Are All HDHP Plans The Same?
No, HDHP plans are not all the same. They are all governed by the same IRS rules for maximums and minimums and can all be paired with an HSA. However, the deductible on some HDHPs can be significantly higher than the minimums on other plans. It can also be as high as the maximum.
So, do your research before choosing an HDHP. There will be more than a few to choose from and you’ll find them across the various tiers of the health insurance marketplace.
What Is A Health Saving Account (HSA)?
An HSA allows you to save money for out-of-pocket medical expenses like deductibles, copayments, and coinsurance. An HSA may also cover some dental, drug, and vision care expenses. Always check with the insurer and your medical provider if you need clarification.
If you sign up for an HDHP, you can include an HSA. You may set it up independently if your insurer doesn’t have one for you. Check with your health insurance company to see if they are partnered with an HSA financial institution. Alternatively, your bank may offer an HSA option.
Remember, you can only open an HSA if you have an HDHP plan.
When you add money to your HSA savings, you lower your taxable income. The earnings you hold in there remain tax-free, and the account balance rolls over from one year to the next. This allows you to build up reserves to pay for more expensive healthcare services in the future.
Can I Retain My HSA If I Terminate My HDHP?
Yes, you can retain your HSA even if you no longer have an HDHP plan. This sometimes happens if your employer offers a subsidized HDHP plan and you leave the company. But before celebrating this good news, you need to know how an HSA works.
You set aside money out of your pre-tax earnings. This can be deducted directly from your monthly salary, and your HSA savings will slowly grow. If you use an HSA for non-medical expenses and are under 65, you’ll face taxes on that withdrawal and pay a 20% penalty on the removed sum.
An HSA has some fantastic benefits, though. It offers three tax benefits. You can:
- contribute funds to your HSA for a tax deduction
- earn tax-free interest on the account
- and withdraw HSA funds for qualified medical expenses tax-free
If you terminate your HDHP policy, you may retain your HSA. But you probably won’t want to. You will pay a 6% excise tax on further contributions to your HSA for every tax year these contributions remain in there. It would be best to withdraw your HSA contributions if you terminate your HDHP policy.
You may withdraw some or all of these excess contributions without paying the excise tax on the amount withdrawn if you:
- Withdraw them by the due date of your tax return for the year you made the contributions.
- Withdraw any income earned on the withdrawn contributions and include them under ‘Other income’ on your tax return for that year.
What Does A High-Deductible Health Plan Cover?
As with all ACA-compliant plans, HDHP plans must cover the ten essential health benefits. These include:
- Ambulatory Patient Services
- Emergency Care Services
- Maternity and Newborn Care
- Mental Health and Substance Use Disorder Services
- Prescription Drugs
- Rehabilitative and Habilitative Services and Devices
- Laboratory Services
- Preventive and Wellness Services and Chronic Disease Management
- Pediatric Services, Including Oral and Vision Care
Preventive care from in-network providers is usually 100% covered even before you meet the deductible. This does not necessarily apply to other medical services.
You may also face higher out-of-pocket costs if you use medical providers outside your plan’s network. However, federal rules require even out-of-network care to count towards in-network cost-sharing, like the deductible or the out-of-pocket maximum.
Preventive Care Coverage In High Deductible Health Plans
HDHPs cover specific preventive care services – like annual checkups and preventive screenings like mammograms – before the deductible. All ACA plans require this. However, under an HDHP, no other services can be paid for by the health plan until the insured has met the deductible.
HDHPs cannot have copays for office visits or prescriptions before you meet the deductible.
Some health insurance plans have a high deductible but also offer copays for office visits. HDHP plans don’t do this, though. A high deductible does not necessarily mean your health plan is an HDHP.
Managing Healthcare Costs With A High Deductible Health Plan
The best way to manage your healthcare costs with an HDHP is to combine it with an HSA. You can use the money set aside in your tax-free HSA to pay the deductible, plus other qualified medical expenses, like coinsurance and copayments.
If you are generally healthy and don’t have a few healthcare expenses, an HDHP will work for you. You’ll benefit from the lower monthly premium, and your HSA will take care of the rest when you need medical care and face a high deductible.
Comparing High-Deductible Health Plans To Traditional Health Insurance
An HDHP can take various forms, such as a Preferred Provider Organization plan (PPO) or a Health Maintenance Organization plan (HMO). Despite being any type of insurance plan, an HDHP typically features lower monthly premiums compared to regular PPOs and HMOs.
However, the difference between HDHPs goes beyond just the high deductible. Different HDHPs may have varying deductible amounts. Just having a high deductible doesn’t mean a plan functions as an HDHP. Some plans, despite having a high deductible, cannot be used in conjunction with a Health Savings Account (HSA).
The key difference between a high-deductible health plan and other health plans is that it can be paired with a Health Savings Account. This unique feature allows you to offset the expenses associated with the high deductible and other out-of-pocket costs.
Selecting a health insurance plan involves more than just comparing premiums and deductibles. The market offers various health insurance types, each with its costs and benefits. Additionally, the availability of plans, including HDHPs, can vary based on your location.
How To Choose The Right High-Deductible Health Plan
Fortunately, you don’t have to stress about choosing the right one. Insurance experts like Enhance Health can help you choose a plan that works for you and your family. We’ll help you understand the terminology, and go through the plans you qualify for, to find the right one.
Remember that HDHP plans can be almost any type of health insurance. But there are certain things to look out for when choosing an HDHP plan.
A good HDHP plan will offer you:
- Premiums that fit into your budget
- A minimum deductible amount that compares favorably with similar plans
- A maximum out-of-pocket expense amount that is still affordable
- The medical benefits that correlate to your healthcare needs
- An associated HSA that allows you to save towards out-of-pocket expenses
HDHP plans are affordable because they have low monthly premiums. Unfortunately, their higher deductibles are a serious drawback, unless paired with an HSA account. These accounts cover those out-of-pocket expenses that can put a serious dent in your budget. They are also tax-free, another bonus!
But there’s a lot to consider when choosing healthcare coverage for you and your family. It has to not only meet your financial needs but also, more importantly, your medical needs. We have the expertise to help you choose. Call us today for guidance and assistance with choosing the right plan for you.