In a way, a high deductible plan, or HDP, is a gamble. You pay less for your insurance up front, which means you'll save money. But, if something does happen, you'll end up paying a lot out of pocket before the insurance company pays a dime. If you never use it, the special tax-free savings account and extra money you save on insurance should leave you ahead at the end of the year.
Qualified HDP Insurance
To qualify as a high deductible plan, a health insurance contract must have a minimum out-of-pocket cost. It'll be a higher amount than a plan that offers coverage with co-pays. Once you meet that threshold, the plan will help pay for your healthcare just like any other insurance. The one exception to this rule is some HDP coverages can pay for basic preventative care like physical examinations or mammograms before you hit the out-of-pocket requirement.
Health Savings Accounts
The health savings account is the second part of a HDP, and it helps compensate for the out-of-pocket money you'll have to spend. HSAs are special accounts that you or your employer can deposit pre-tax money into to pay for uncovered medical expenses. The accounts can earn interest, and can be rolled over from year to year. If you need medical care, your HSA money can pay your deductible. If you don't, you have it for the future.
HSA vs FSA
HSAs may sound similar to the flexible spending accounts that many employers offer, but there are two important differences. First, a HSA belongs to you, not the company. This means if you leave your job, your money stays with you. Second, HSAs don't expire. Instead of having to spend all of the money in your HSA before the end of the year, you can let it accumulate over time.
The Internal Revenue Service can annually reset the limits for out-of-pocket expenses for an HDP and how much you can put into your HSA. For 2013, a HDP's minimum out-of-pocket amount was $1,250 for an individual, and $2,500 for a family. The maximum out-of-pocket was $6,250 for an individual or $12,500 for a family. You could add up to $3,250 to your personal HSA or up to $6,450 to one covering your entire family.
Benefits and Drawbacks
The thinking behind HSA's is you'll take an active role in managing its cost since those early bills will fall on you. Since your insurer is spending less on you, they're charging you less for your premium, and you should come out ahead. However, you could end up spending money for insurance but not receiving anything in return. For example, if you have a HDP with a $2,500 deductible, and your only medical care is a $2,000 emergency room visit, you will have paid for the insurance and the ER trip.
- Mayo Clinic: Health Savings Accounts: Is an HSA Right for You?
- Society for Human Resource Management: For 2013, Higher Limits for HSA Contributions and Out-of-Pocket Expenses for High-Deductible Plans
- Huntington National Bank: Health Savings Account versus Flexible Spending Account
- Los Angeles Times: Many Opt for High-Deductible Health Plans Despite Risks
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