By Alice Stevens
Is a high deductible health plan (HDHP) really worth it?
Whether you’re considering enrolling in an HDHP or sticking to a more traditional plan, Open Enrollment is a great time to evaluate if your health plan works for you and see if a different one might be better.
High deductible health plans can be advantageous because they often have lower premiums than traditional plans. Some high deductible health plans include a Health Savings Account (HSA). In an HSA, you can set aside tax-free money to use for health costs. As long as the money is used for qualifying health care costs, it remains tax-free.
Before you enroll in an HDHP, here are four things you should consider:
- Health needs
- Budget constraints
- Deductible and out-of-pocket costs
- Health Savings Account advantages
You should take an inventory of your health needs before you start looking at health insurance plans.
- How frequently do you need to see a doctor?
- Do you need to see a specialist regularly?
- What prescription medications do you take?
- Are you aware of any major medical procedures or surgeries coming up?
Answering a few basic questions about how you use health care services will help you understand the kind of coverage you need. Once you know what you need, it’ll be easier to evaluate health plans and eliminate ones that will not provide good coverage.
If you have recurring health needs or know that you may have larger medical expenses within the next year, a high deductible health plan may not be the best fit because you’ll have more responsibility for your health expenses.
If you’re in good health and don’t need a lot of medical attention, a high deductible health plan can be a nice option because the monthly premiums tend to be lower.
You should also check your budget before health insurance shopping. Think about how much you can spend on a monthly premium. A premium is like paying a subscription for a magazine, but it’s for a health insurance plan. Keep your price range in mind as you compare plans.
As you look at your budget, you should also consider how much you can spend on out-of-pocket costs. Out-of-pocket costs are your responsibility after the health insurance company pays its portion. If you see a doctor regularly or take prescription medication, you should also set a price range for these regular out-of-pocket expenses.
As you plan your monthly budget, it’s good to set aside money each month for health expenses. Even if you have no medical expenses during the month, you can save this money for future health expenses.
Deductible and out-of-pocket costs
It can be easy to assume that the monthly premium is the full cost of the plan. However, the monthly premium is only the minimum you would spend with a health plan. The full cost of a plan includes premiums and out-of-pocket costs for the health services you receive throughout the year.
The rest of a health plan’s cost is determined by the health services you receive and how much your copays or coinsurance are for those services. The maximum amounts you would spend on health services through copays and coinsurance is totalled in the annual deductible and out-of-pocket maximum listed for the plan.
You may not hit your annual deductible or out-of-pocket maximum for the year while on your health plan. However, it’s important to consider what your part of the cost-sharing would look like with any plan you consider.
High deductible health plans typically do not have copays or coinsurance. Instead, the hospital or clinic bills the insurance company. Once the insurance company has paid its portion of the negotiated rate, you’ll be billed for the rest.
If you’re looking at a high deductible health plan, you shouldn’t overlook the deductible and out-of-pocket limits because you’ll be responsible for more of the cost for the health care you receive.
Health Savings Account advantages
One major draw of high deductible health plans are Health Savings Accounts (HSAs). Money goes into the account tax-fee and remains tax-free as long as it is used for qualified health expenses.
Qualified health expenses include doctor’s appointments and prescriptions.
You can only add money to an HSA if you currently have a high deductible health plan.
Unlike Flexible Spending Accounts (FSAs) where the funds disappear at the end of the year if they haven’t been used, the funds in HSAs rollover year after year.
Once you have enough money in your HSA, you can start investing it to grow. Some people use HSAs as part of their retirement savings plan because of the tax-free growth. The money in an HSA stays tax-free as long as it’s used for medical expenses.
Once you hit age 65, the HSA account works like a traditional IRA, and there are no longer penalties for using your HSA funds for non-qualified expenses.
Choosing a health plan
While there are some nice advantages to choosing a high deductible health plan, these plans aren’t ideal for every situation. Thinking through your health needs and budget constraints will help you decide if a high deductible health plan (HDHP) with a Health Savings Account (HSA) might be a good fit for you.
Think about the monthly premium and deductible for an HDHP and decide if it’s a financial responsibility you are prepared to take on. If it is, you should also plan how much money each month you’re going to put into your HSA.
Whatever kind of health plan you choose, look at the premium rates, annual deductibles, and out-of-pocket limits. Considering these three factors will help you get a better sense of how much your plan will cost in total.
Every year you should make sure that your health plan meets your coverage and financial needs. Evaluating your health needs and budget can help you determine a price range and quickly weed out plans that won’t work for you.