High-Deductible Health Plan Description

One way to deal with the rising cost of health insurance premiums is with a high-deductible health plan, or HDHP. These plans keep premiums low by shifting more of the burden onto the individuals who buy them. With an HDHP, you agree to pay the first $1,200 or more of claims, after which the plan begins paying for the cost of health care. For the right person, this can be an excellent choice, particularly if the HDHP is coupled with a health savings account.

High Deductible

• The high deductible is what sets these plans apart from typical health insurance plans. While a standard health insurance policy might have a deductible of $250 or $500, the deductible on the HDHP is much higher. To qualify as an HDHP, the plan must have a minimum deductible of $1,200 for an individual plan or $2,400 for a family plan. These deductible amounts are reviewed each year and raised according to a formula that includes the rate of inflation. If you are unsure whether or not your current plan qualifies as an HDHP, you can check with your insurance agent or employer.

Catastrophic Coverage

• The HDHP is designed to provide coverage against catastrophic illness or injury, as opposed to coverage for day-to-day health care costs. While the cost of certain cancer screenings and other recommended medical tests are included in the plan at no charge, the HDHP is primarily aimed at people who wish to protect themselves against a catastrophic medical problem. These plans are best suited for people who are comfortable spending their own money for doctor visits and other medical care until they reach the deductible limit.

Lower Premiums

• As with other types of insurance, the premiums on a health care plan typically move in the opposite direction of the deductible. As the deductible goes up, the monthly premium should come down, since the health insurance buyer is assuming more of the risk with the higher deductible. That means that an HDHP is likely to be less costly than a typical HMO or PPO plan. Each consumer needs to assess the total cost of each plan to determine which one is really the best value. The HDHP might be the perfect choice for a young and relatively healthy person, but it might not be as good a deal for an individual with a chronic medical problem.

HSA Eligible

• Many consumers who choose a HDHP couple it with an HSA. The purpose of the HSA is in part to cover the cost of the deductible, as well as to cover any other medical expenses not covered by the plan. Unlike a flexible spending account, the funds of which must be used by the end of the year or forfeited, the money invested in an HSA can continue to grow and roll over from year to year. In addition, the money contributed to an HSA is tax deductible, making the dollars spent through the plan less expensive to the policyholder. Depending on the premium differential, a consumer could conceivably self-insure the deductible by funneling those premium savings straight into the plan until the cost of the deductible is covered. For instance, if the HDHP is $200 a month less than a more comprehensive plan, you could invest that $200 a month into the HSA and build up $2,400 by the end of the year, enough to cover the deductible on a typical HDHP family plan.