For some people, Individual health insurance isn’t necessarily the right option. While it’s nice to know you’re covered for everything, if you’re young, relatively healthy and looking to save money on coverage, a high deductible health insurance plan (HDHP) may be a better fit.
However, like with most things in life, there are costs and benefits. Here are the pros and cons of high deductible health insurance, and some information to help you make the right decision.
High Deductible Health Insurance Defined
Like the name implies, a high deductible plan has a high deductible—meaning you must pay a considerable amount out-of-pocket to meet your deductible before health insurance kicks in. That means, if you have an accident and your medical bill is $20,000—you need to pay the first $10,000, and your insurance pays the balance.
Typically—and here’s the main benefit of these plans—if you don’t have a major medical expense, you end up paying less each month for your premium. It’s simple enough: in exchange for a low premium, you pay more upfront before you can start to use your insurance. If you stay healthy, this is a great deal. But, this arrangement can be problematic (and costly) if you get sick, or have an accident and need to use your insurance.
To be categorized as a high deductible health plan, the deductible amount must be at least $1,370 for individual and $2,700 for families. Interestingly, the IRS sets these limits (and they change annually). But, the IRS provides financial protection for consumers too, by setting annual out-of-pocket maximums. In 2018, the high deductible health insurance minimum and maximum amounts were as follows:
- Minimum deductible – $1,370
- Maximum deductible – $6,650
- Minimum deductible – $2,700
- Maximum deductible – $13,300
What Does an HDHP Cover?
You may have heard people refer to an HDHP as “catastrophic” coverage. Basically, your plan covers standard medical care you would expect to receive from any other insurance plan. However, with a high deductible, you will pay out-of-pocket before your insurance pays.
The one exception is with preventive care services. The Affordable Care Act made it a requirement that all insurance plans provide full coverage for in-network preventive care, even before deductibles have been met. That means annual check-ups, cancer screenings, mammograms, etc. are provided at no charge to you.
Main Benefits of an HDHP Plan
Despite a large deductible, there are many benefits to choosing an HDHP plan. For one, monthly premiums are quite affordable. For people on a budget who are in decent health, it’s peace of mind to know that you have reliable health insurance if you really truly need it, without having to pay an extraordinary amount of money each month. Second, preventive care and annual exams are covered, and you don’t need to meet your deductible just to get a check up or receive a flu shot.
Health Savings Accounts and High Deductible Health Insurance
As a member of an HSHP, you may be entitled to start a Health Savings Account (HSA). This is a savings account created specifically to save money for medical care. All money you invest in the HSA grows tax free—even the interest. And when you need care, you can get it. The account belongs to you—if the money isn’t used, you can roll it over towards retirement.
While you can manage an HSA on your own, employers often offer high deductible health insurance paired with an HSA. Employees who join make regular contributions, with additional funds contributed by the employer. However, unlike traditional employer backed accounts, like the Flexible Savings Accounts (FSA), your HSA is portable. If you change jobs, move or retire, your account stays with you. Note: not all HDHPs are HSA-eligible.
If a high deductible health insurance plan sounds like a smart move, or you’d like some more information on HSA compatibility, give us a call. We’re here to help, and we’re ready to make navigating individual health insurance as easy and stress free as possible.
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