What is a High Deductible Health Plan
A high deductible health plan, or HDHP, is a type of health insurance plan with (you guessed it) a higher deductible than most insurance plans. The monthly payments are typically lower but you cover the full costs of healthcare until you reach your yearly deductible. This is also the plan that can be combined with a health savings account (HSA), which allows you to pay for certain medical expenses tax free.
What qualifies as a high deductible health plan?
Only specific plans qualify as HDHP and can be combined with an HSA. There are three rules set by the IRS for a health insurance plan to be considered a HDHP:
- There is a minimum deductible amount. In 2021, the minimum deductible for individuals is $1,400 and for a family it’s $2,800. The deductible is the amount you must pay out of pocket before your healthcare provider starts covering the costs.
- There is a maximum out-of-pocket limit. In 2021, the maximum out-of-pocket cost for an individual is $7,000 and for a family it’s $14,000. This is the maximum amount you’d ever pay in a year.
- You cover 100% of the costs until you reach your deductible. Unlike other health plans that may have a copay for prescriptions and doctor visits, you’re responsible for the entire cost. (This isn’t as bad as it sounds, keep reading.)
What are the benefits of a high deductible health plan?
There are a few reasons that a HDHP combined with an HSA is a good option:
- The monthly premium costs are typically much lower. So if you’re someone who doesn’t go to the doctor often, this can help lower your monthly payments.
- If you combine your HDHP with an HSA, you can pay your deductible and other qualifying medical expenses with tax free money that you’ve contributed to your HSA.
- An HSA is very similar to a typical savings account. The funds in an HSA are yours to keep. Unlike a Flexible Spending Account (FSA) that other health plans may offer, an HSA will never expire, it goes with you if you get a new job, and it will collect interest.
- Employers can contribute to your HSA. This is a great benefit some companies offer. You just need to make sure your contributions in addition to your employer’s contributions don’t exceed the yearly maximum set by the IRS.
- The “full price” rate is typically a discounted rate negotiated by your healthcare provider. For example, a doctor visit that would typically cost $200, may only cost $100 as long as it’s within your healthcare provider’s network.
What are the disadvantages of a High Deductible Health Plan?
A high deductible health plan can be a good option, but there are some thing to keep in mind:
- You’ll need more liquid cash to cover medical expenses. If you don’t have a decent amount of liquid cash, it may be tricky or impossible to pay for both the monthly premium payment as well as your medical expenses. If you or your employer are contributing to an HSA, this can help, but if you don’t have enough in your HSA, you’ll need to dip into your own savings to cover medical expenses until you reach your deductible.
- It can get expensive if you frequent the doctor. If you visit the doctor frequently and incur a lot of medical expenses, the out of pocket expenses may get expensive. Your monthly premiums should be less expensive, but you’re still going to be responsible for a large portion of the initial medical expenses.
- People tend to postpone their doctor visits. Unfortunately, the higher costs of the deductible can deter people from visiting the doctor. In a survey conducted by the Kaiser Family Foundation from 2019, half of adults said either they or a family member had delayed or gone without medical care because they couldn't afford the expense.
Should I offer a High Deductible Health Plan as an employer?
The HDHP combined with an HSA can be an attractive benefit for attracting and retaining employees because of the dramatic tax benefits—especially if you’re planning to contribute to your employee’s HSA accounts.
HDHPs can also be a good way to keep your monthly insurance contributions lower, and still offer a great benefit to your employees. Even if you’re contributing to your employee’s HSAs, your monthly contributions will typically be lower than a traditional health insurance plan.
If you’re thinking about offering a high deductible health plan as an employer, it’s always best to discuss your unique company needs with your health benefits provider. Depending on your employee demographics, they’ll be able to suggest options for your business.
Disclaimer: Any articles written on this website, including this article, are not to be taken as legal or HR advice. Employment laws are constantly changing and vary by location and industry. You should consult a lawyer or HR expert for guidance. Need HR advice? We can help!
📸 Photo by Andrew Neel on Unsplash
