High-Deductible Health Plan Basics

The new year has begun, and it’s time for millions of Americans to start getting acclimated to their new health insurance plans under the Affordable Care Act (Obamacare). While there have been many changes over the past few years as a result of this legislation, one of the most significant is the increase in prevalence of high-deductible or catastrophic health plans, especially among 20-somethings who have aged out of their parents’ policies.

For those who are new to the world of high-deductible health plans (HDHPs), here is a basic rundown of what you can expect from this type of plan – and a few tips for getting the most value from it:

What is a high-deductible health plan (HDHP)?

According to the IRS, a high deductible health plan is defined as having “a higher annual deductible than typical health plans” and “a maximum limit on the sum of the annual deductible and out-of-pocket medical expenses that you must pay for covered expenses.” The minimum annual deductible for a HDHP in 2013 was $1,250 for individuals or $2,500 for a family.

What is covered by a HDHP?

Under the Affordable Care Act, all health insurance plans (including high-deductible and catastrophic plans) must cover preventative care with no cost sharing. In other words, it’s free at the point of service. Some of the most common examples of preventative care under the ACA include generic birth control, immunizations, prenatal care, HIV screening, cancer screening, and up to three doctor’s visits per year.

Outside of preventative care, high-deductible plans generally offer the same types of coverage as other plans. The biggest difference is that you agree to pay for a larger portion of your medical expenses out-of-pocket.

What are some advantages to a HDHP?

The main advantage to a high-deductible plan is that the premiums are usually significantly lower than other plans. This makes it a good plan for people who are healthy and have very few medical expenses on a regular basis, but still want coverage in the event of an emergency.

What are some disadvantages to a HDHP?

High-deductible plans require you to pay for most of your expenses out-of-pocket, which can make them feel like a waste of money. (To be fair, though, very few young people come out ahead when it comes to health insurance in general.) Additionally, lower-income households may not be able to afford their share of the costs in the event of a medical emergency.

How can I get the most value out of my HDHP?

In general, the best way to save money on health care is to never get sick. However, here are some more realistic suggestions for getting the most out of your high-deductible plan:

Take Advantage of Preventative Care
If you have a high-deductible plan, the most valuable benefit you have is free preventative care. So be sure to get an annual check-up with your doctor (including a well-woman exam, if you’re female) and stay current with immunizations. Additionally, if you’re on the pill, talk to your doctor about switching to a generic brand that’s covered by your insurer.

Contribute to an HSA
Most high-deductible plans come with the option to contribute to a health savings account (HSA). An HSA is basically a tax-free savings account that is used exclusively for medical expenses. Some employers contribute to their employees’ HSAs each year as part of their benefits package – but even without their help, an HSA is a great place to set aside money for out-of-pocket medical expenses.

Keep an Emergency Fund
If your health insurance plan is not HSA-eligible, the alternative is to keep a substantial emergency fund in your savings account. Ideally, you should have at least the amount of the deductible set aside – but if that’s not possible, set aside as much as you can. Any amount that you can afford to pay upfront will save you money on credit card interest and help reduce the risk of ending up in collections.

Don’t Pretend to Be Uninsured
Depending on how high your deductible is, you may be tempted to go around telling providers that you’re “uninsured” so you can get a self-pay discount. However, you’re almost always better off submitting the bill to your insurance company – even if you know they won’t pay it. Why? First, by having some form of insurance, you are eligible for whatever negotiated rates your insurer has with a particular provider. Second, your insurance provider cannot apply expenses toward your annual deductible and out-of-pocket maximum if you don’t report them. It may not seem important at the time, but all of those little expenses from earlier in the year could reduce your portion of a future hospital bill.

Save Your Receipts
If you itemize deductions on your annual income tax return, note that most medical and dental expenses exceeding 10% of your adjusted gross income are deductible. Additional information on deducting medical expenses can be found here.

Do you have a high-deductible health plan? How do you make it work for yourself and/or your family?

One comment on “High-Deductible Health Plan Basics

  1. I’ve always had a HDHP and I haven’t minded the higher deductible as long as the monthly premiums are affordable. But, with Obamacare, the premiums have become cost prohibitive and the deductibles are still astronomically high. =/

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