Having health insurance is necessary, but it’s not always affordable. The premiums for plans that offer a lower deductible and low out-of-pocket expenses aren’t feasible for many. Enter the high deductible health plan. A high deductible health plan can potentially both save you money and allow you more flexibility than traditional health plans. Here’s everything you need to know before signing up.
What is a high deductible health plan?
High deductible health plans (HDHPs) are insurance plans with a higher deductible than you’d have with traditional coverage. This means you have to pay more for healthcare services out of your own pocket early in the year before your insurance company begins to share the cost of care with you. You typically don’t have a traditional copayment, either; you’ll pay out of pocket at 100% until you meet your annual deductible. The exception to coinsurance is preventive care, which is covered in full as outlined by the Affordable Care Act (ACA). These plans can be paired with a health savings account (HSA) so certain medical expenses can be paid for tax-free.
The IRS defines high deductible health plans on a more detailed scale: The deductible itself must be a minimum of $1,400 for an individual plan or $2,800 for a family plan, and the yearly out-of-pocket costs can’t exceed $6,900 for a single person or $13,800 for a family. The limit, though, doesn’t apply if you receive out-of-network services.
HDHPs are popular, too—they’re the second most popular plan after standard PPO health plans. According to the 2019 Kaiser Family Foundation Employer Health Benefit Survey, 30% of employed people chose to enroll in a high deductible health plan with an HSA option. That number is slowly increasing as well, while standard PPOs are becoming less popular.
How do HDHP plans work?
When you have a high deductible health plan, you have standard medical insurance—you’re just paying a lower monthly premium and higher out-of-pocket costs with a coinsurance percentage. For an individual, you’ll pay 100% of the cost for doctor visits, testing, and treatment until you reach your deductible. Then your insurance kicks in (the rate or percentage it pays varies by plan) until you reach your out-of-pocket maximum. Once you meet that, the insurance pays for everything in full (assuming the providers you use are in your network).
Coinsurance rates can vary from plan to plan, so be sure to check your insurance materials to find your rate.
If you choose to have an HSA paired with your insurance, you or your employer will make contributions to the account that can be used to pay for other medical expenses tax-free. As an individual, you can contribute up to $3,550; families can contribute up to $7,100. Employers will often make HSA contributions on top of yours, so you typically won’t have to rely on your check for all that money—but together, the employer and employee cannot exceed the maximum.
RELATED: 5 health services to do after you’ve met your deductible
Do HDHPs cover prescriptions?
Because high deductible health plans often come with the same benefits as traditional health insurance, prescription drugs are covered with coinsurance in the same way as medical care. For example, if your prescription costs $10 at full cost, you’ll pay that until you meet your deductible, and then you may pay $2 once the insurance kicks in. But that’s not always the case, some HDHPs have a combined medical and pharmacy deductible while others don’t. Check your plan documents and formulary to see the exact amounts for you personally.
What are the advantages of a high deductible health plan?
The major benefit of a high deductible health plan? It’s less money out of your pocket every month if you don’t utilize health care services frequently, or at all. The premiums are lower than a traditional health plan. And if you don’t go to the doctor very often, or you have a small family with few dependents, that’s a pretty big perk. Plus, if you deposit enough into an HSA, you will have the money set aside already to pay for any unforeseen medical expenses you may incur.
What are the disadvantages?
Having a lower premium and a high deductible may seem like a good thing on the surface if you don’t go to the doctor often, but it can work against you, as well. If you have a car wreck or you develop heart palpitations, for example, you may go to the doctor more than you expected to get it diagnosed and treated—which, if you haven’t met your deductible, could lead to you spending a lot more money on visits than you would with a traditional health plan.
Depending on how you handle your health care, you may end up in worse shape than you would otherwise. An October 2017 study in Health Affairs showed that patients with high deductible health plans often skipped recommended screenings and used the emergency room for things that wouldn’t typically require an emergency room visit. Plus, a 2014 white paper from the University of Michigan showed that patients with chronic issues often skipped the doctor altogether for fear of paying more than they could afford.
That being said, if you’re prepared to pay for the potential extra healthcare costs associated with high deductible plans in exchange for lower premiums, and you intend to use the plan the right way, there may not be too much to be concerned about.
Is HDHP better than PPO?
A PPO plan—or preferred provider organization—is one of the standard health insurance plan types. Like high deductible health plans, you have both in-network and out-of-network providers. Out-of-network providers cost more to see. Both plans typically cover the same things, but PPO plans generally have higher premiums paired with lower deductibles and out-of-pocket costs than HDHPs. Also, with PPOs, you typically won’t get to take advantage of an HSA in conjunction with your insurance coverage.
The decision between an HDHP or PPO plan lies in how often you visit the doctor. A PPO may be best if you’re comfortable paying more upfront and plan to visit the doctor regularly. For example, chronic conditions often require frequent doctor’s visits. If you’d rather save more money from month to month and don’t expect healthcare issues, an HDHP could be better.
Should I get an HSA?
A health savings account gives you a little bit of a financial boost when you use it in conjunction with an HDHP. Here’s how it works. Every month, a payroll deduction puts money into your HSA. If you have an insurance plan through work, it’s possible your employer may contribute to the HSA as well.
The HSA money is available for you to use as either a debit card or checks. When you pay for qualified medical expenses—like deductibles, copays, dental work, glasses, acupuncture, prescriptions, even over-the-counter medications—you do so with the card or checks.
It’s important to know that you generally can’t pay for premiums with your HSA, though in some cases, COBRA premiums and medical insurance paid for while on unemployment can be reimbursed through the account. At the end of the calendar year, whatever available balance you have in the account rolls over to the next year.
Unfortunately, not everyone is eligible for an HSA. You need to have a qualifying high deductible health plan as outlined by the IRS guidelines above. If your employer doesn’t offer an HSA, you can get one from a private company—but still only with a qualifying health insurance plan. Keep in mind that not all HDHPs qualify for an HSA. If you’re older than 65 and on Medicare, you’re unable to open an HSA. You’re also unable to contribute to one you already have.
There are a few benefits to having an HSA aside from just getting pre-tax purchases. You don’t pay taxes on the account or on HSA-eligible expenses. Contributing directly from your paycheck allows you to be taxed like you make less money (your salary minus the amount you’ve contributed in the year). And, you can invest the money in your HSA rather than using it on medical expenses.
If you do get an HSA, there are some potential downsides you should be aware of. The government has guidelines for how much you can contribute to an HSA. According to the latest numbers from the IRS, individuals can only contribute up to $3,550. Families are only able to contribute up to $7,100. Luckily those amounts are more than double the respective minimum deductibles. If you’ve saved enough, you can cover all those costs until you meet it.
The other negative to an HSA is that it really only is for medical costs. You can’t spend that money on any non-qualifying purchases, or else you’ll be responsible for paying income tax on it. If you’re younger than 65 and use the money for non-medical expenses, you’ll pay a fine on top of income tax. However, if you are older than 65, you can use the money for anything and be taxed the same as pulling from an IRA. So be sure to save and spend that money wisely.
RELATED: HSA vs. FSA vs. HRA
How SingleCare can help
You’ll likely pay higher costs for prescriptions until you hit your deductible, so it’s wise to shop around. In many cases, you’ll find that using a SingleCare coupon could save you more than paying the coinsurance rate. When using SingleCare or any other discount cards, that amount will not apply to your deductible. However, it will save you money in the immediate. Start searching for your prescriptions on singlecare.com now.