The Short Version of High Deductible Health Plans

The Short Version of High Deductible Health Plans

High-deductible health plans (HDHPs) are more common than ever. The reason is simple, the
cost is a lot less expensive than traditional plans like PPOs and HMOs. But there’s a lot of
confusion about what exactly they are and how they work. I’ll walk you through the basics in the
4 steps below. For a deeper dive into HDHPs go here.
1. What is a HDHP?
2. How to know if you have an HDHP now?
3. What are the advantages and disadvantages of an HDHP?
4. Should you open a Health Savings Account (HSA) with your HDHP?

1. What is a High Deductible Health Plan?
A HDHP has a higher deductible and lower premium than traditional plans—but this can mean
practically anything. The deductible is how much money you have to pay in a year before your
health insurance pays anything (except when it comes to preventive care). The so called ‘Out-of-
Pocket’ cost includes the deductible amount but also includes co-payments and co-insurance.
Each year, the IRS releases the limits for HDHPs. These amounts are the minimum deductible to be considered a HDHP. Here are the HDHP qualifying amounts:

For 2019:  $1,350 (Individual Minimum Annual Deductible; no change from 2018); $2,700 (Family Minimum Annual Deductible, no change from 2018)

Available from the IRS here.

Another important detail is the maximum ‘Out-of-Pocket’ amount allowed. This is a limit on the
total amount of money you have to pay in a year before your insurer pays 100% of your costs.
Qualifying HDHPs can not exceed a maximum out-of-pocket limit set by the federal
government. These are the maximum out-of-pocket limits for individual and family plans:

For 2019: $6,750 (Individuals); $13,500 (Family)

Available from the IRS here.

2. How to know if you have an HDHP now?
Not all health insurance plans with high deductibles are considered HDHPs—even a plan with a
$1,000 deductible doesn’t qualify. If you’re not sure whether you have a HDHP, here are some
tips to find out.

  • Look at your Summary of Benefits and Coverage (SBC): An SBC is a document that explains exactly what your health insurance plan covers. Including what your deductible, co-pay, co- insurance, and out-of-pocket maximums are. You can find your SBC by logging into your health insurance account.
  • Ask your employer or benefits manager: If you get health insurance through work, your employer will have more information.
  • Call your insurance company: If you’re still not sure if your health insurance plan is a HDHP, you can call your insurance company directly and ask. You can usually find their phone number on the back of your health insurance ID card.

3. What are the advantages and disadvantages of an HDHP?

As with any health insurance plan, an HDHP has both pros and cons. Below is a short overview
of the benefits and drawbacks that people with HDHPs most often experience:
Benefits of a HDHP

  • Much lower premium payments per paycheck
  • A Health Savings Account (HSA)
  • Because the deductible comes out of your pocket, you have more control over your care.

Drawbacks of an HDHP

  • Possibility of higher out-of-pocket costs up to your Out-of-Pocket maximum.
  • Some financial incentive to avoid care.

4. Should you open an HSA with your HDHP?
If you have a HDHP, you can open a Health Savings Account (HSA). It’s a tax-exempt savings
account that is triple tax free (the only savings account like that). You use money from an HSA
for out-of-pocket healthcare expenses. An HSA offers big benefits for you and it’s your money:
1. Your contributions are tax-deductible
2. Any interest earned is tax- free
3. You don’t pay tax on any withdrawals you make for qualified medical expenses.
4. There are no time limits or withdrawal requirements.
5. The maximum HSA contribution in 2019 is:

  • Single = $3,500/year
  • Family = $7,000/year
  • If you’re 55-plus, you can sock away an additional $1,000 a year.

For more information about HSAs, go here.