While it may sound counterintuitive, a high deductible health plan could be one of the best ways to pay less for your health insurance. This type of insurance is ideal for many people who have both the funds and the favorable health to make the unique perks of these insurance policies work for them.
Let’s explain: A high deductible health plan is a health insurance plan that has a higher minimum deductible for medical expenses. Your deductible is the part of your insurance claim that you have to pay yourself, out-of-pocket. When you have paid your deductible, the insurance provider will cover the rest, as set out in your contract.
The logic is that high deductible health insurance plans not only lower insurance premiums but also encourage people to be more aware of their medical expenses. Of course, this sort of health insurance plan is not for everyone. It’s designed to benefit people who have money to pay those deductibles, who are in good health, and who only want insurance in case of serious and sustained medical issues.
Another perk of this plan: high deductible health insurance plans offer access to a tax-advantaged Health Savings Account (HSA) and are in fact the only way to qualify for this kind of account. An HSA is a triple tax shelter that allows you to contribute tax-deferred contributions which you can use to pay for qualified medical expenses not covered by your HDHP. Think of it as a 401k for your health care.
High deductible health plans have an annual maximum limit on out-of-pocket expenses for covered services from in-network providers. (In-network providers are health care providers that have a contract with your insurance company to accept specific discounted rates.) To give you a rough idea of this maximum limit, in 2020, it was $6,900 for an individual and $13,800 for a family. So, what does this mean, exactly?
It means you or your family has to pay this amount before your plan will pay 100% of your health expenses for in-network care.
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Building on what we’ve already learned about high deductible health plan coverage, let’s get into how this kind of health insurance actually works.
In order to qualify as a high deductible health plan and to reap the rewards of its benefits, the IRS establishes both minimum deductibles and maximum out-of-pocket expenses. We’ve already given you an overview of the maximum limit for 2020 so you have a rough idea of what you can expect to pay until your provider pays all of your in-network health care costs.
The minimum deductible for 2020 was set at $1,400 for an individual and $2,800 for a family. So, this is approximately what you are going to have to pay before your coverage even kicks-in. (Just keep in mind these numbers are subject to change annually but don’t generally vary too much from the previous year.)
The great thing about high deductible health plan options is that while they do not cover more mundane medical costs like doctor’s visits, trips to the ER, and prescriptions, they are designed to protect you against serious catastrophes like a major accident or serious diagnoses that could otherwise bankrupt you. And because your insurance plan is not covering all the little things, your premium is lower and you can easily make up for having to pay a higher deductible, which is often close or equal to your maximum out-of-pocket limit anyway.
The takeaway is that even though you will have to pay a sizeable chunk of the costs for a serious medical issue out-of-pocket if you haven’t reached your maximum limit, thanks to lower premiums, you are more likely to be able to afford the expense—particularly if you’ve taken advantage of the HSA.
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We’ve already touched on some of the advantages of high deductible health plans but let’s recap and get into more perks of this kind of health plan.
It bears repeating that when you choosing a high deductible health plan, your premiums drop substantially. So, if you were paying $500 dollars a month for a family plan with a $500 deductible, a high-deductible insurance policy could drop that payment to $150 and save you $350 per month and upwards of $4,000 per year.
It gets better because these savings only reflect what you’ll bank if you meet your deductible: if you stay healthy and spend very little on medical expenses, then you could say thousands of dollars more. None of this even factors in the cash-advantages of also having an HSA.
Other benefits of high deductible health plan include:
Ultimately, we want to help you make the best decision for your life and your unique situation which means we cannot give you a standard answer to that question—but we can help you answer it for yourself.
High deductible health plans are a great choice for many, but certainly not everyone. Before you get a plan, consider these questions.
Answering these questions will give you a good idea if a high deductible health plan is right for you. Regardless of whether it is or it isn’t, the relatively little time you’ve spent educating yourself about this potentially profitably insurance coverage is unquestionably worth it. After all, if you don’t explore the options, you’ll never know if you’re making the right choice.
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