High deductible health insurance plans are exactly what their name describes -- they are health insurance plans where you have a relatively large out-of-pocket responsibility before your insurance will start to pay. Many HDHPs work with Health Savings Accounts that allow you to pay medical expenses with pre-tax dollars. While their deductibles can be expensive, HDHPs usually have lower premiums than traditional health insurance plans. Used strategically, they can still save you a great deal of money.
How HDHPs Work
HDHPs work like most other insurance programs but with one difference -- they usually don't have any co-pays. With an HDHP, you are responsible for 100 percent of the cost of your care, except for covered preventative care, until you reach your deductible. Once you reach your deductible, the HDHP begins to pay your expenses. Some HDHPs have a period with co-insurance where you pay a portion of expenses over your deductible, but they pay the lion's share, while others pay 100 percent of the expenses for you. To qualify as an HDHP, the plan must have a relatively high deductible of at least $2,400 for a family plan.
Why HDHPs Are Inexpensive
With traditional health insurance that has office co-pays, your health insurance can begin paying medical bills for you the first time you go to the doctor. With an HDHP, if you don't hit your deductible, they don't pay for anything other than covered preventative care. This lowers the cost of providing the insurance, letting the insurer charge lower premiums. HDHPs have also been shown to reduce the cost of medical care. People with HDHPs know they will be paying out of pocket for doctor visits and prescription drugs. This makes them more likely to comparison shop to find lower prices or to avoid going to the doctor. Research conducted by the Rand Institute and cited in the Washington Post shows that HDHP subscribers spend 14 percent less on their care, on average, than people with traditional insurance plans.
Health Savings Accounts
One of the benefits of having a federally-recognized HDHP is that you can open a HSA. HSAs let you deposit money to be used on qualified medical expenses, including deductible expenses. You can accrue interest tax-free in your HSA and, unlike an employer-sponsored Flexible Spending Arrangement, any unused money stays in the account for you to use in the future. Given that your ability to write off medical expenses outside of an HSA is extremely limited, HSAs are good ways to reduce the effective cost of your healthcare.
Maximizing Your HDHP
There are three keys to maximizing your HDHP. The first is to open a Health Savings Account and fund it. Having money in the bank will not only help you to pay your deductible, but will also reduce the cost of your care, since you pay for it with before-tax dollars. The second is to take advantage of all of the care that you have available to you. Take advantage of all of your preventative visits, since catching a problem at a free checkup could save you thousands of dollars down the line. Also, if you do hit your deductible, get as much care as possible in that plan year. Finally, find the lowest possible prices. Shop around for doctors, hospitals and drugs and make sure that they are giving you an insurance discount, rather than charging you full price.
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