High Deductible Health Plans (HDHP)
Also known as catastrophic insurance, HDHPs are rapidly gaining popularity. In contrast with traditional managed care plans, HDHPs come with significantly lower price tags. In exchange, there is a high annual deductible. This means that you pay all of your medical expenses out of pocket until your deductible has been met. Then your insurance kicks in, although you may still have co-payments and/or coinsurance to worry about.
In addition, you can contribute a certain amount of pre-tax income to a Health Spending Account (HSA). These funds must be used to pay for medical expenses (co-pays, coinsurance, pre-deductible outlays, nontraditional health care) within the plan year. For 2009, an individual may contribute up to $3,000 and a family may contribute up to $5,900 to an HSA. Alabama, California, Indiana, New Jersey, Washington, D.C., and Wisconsin are the only states that do not allow a tax-deductible HSA or equivalent.
Understanding the Costs
First, there is the monthly premium. This premium will be significantly lower for a HDHP than for most managed care alternatives. Next, you have the deductible. For 2009, the IRS states that the deductible must be at least $1,150 for individual plans and $2,300 for family plans. In most cases, almost nothing is covered until you have met this deductible.
Then you have your traditional out-of-pocket expenses. These vary by plans, but HDHPs often come with high co-pay or co-insurance requirements even after you have met your deductible.
Lastly, consider the benefits packages. Although these plans are often comprehensive for your core health care needs, they can be stripped-down on the fringes to keep costs low. When considering a HDHP, check its policy on preventative care, prescription drugs and pre-existing conditions.
In Conclusion
They call these plans catastrophic insurance for a reason: if you get seriously injured you’re covered, but for regular outlays you bear most of the burden yourself. These plans probably do not make sense if you are chronically ill. If you would not be able to afford the deductible in the event of an accident, an HDHP is probably not your best choice.
The HSA is a great perk for some, however. The guidelines for use of those funds are much broader than what a typical managed care plan would allow. If you regularly use nontraditional medicine, such as chiropractic or acupuncture, your HSA can be a great way to reduce your outlays.
One Last Tip
Because you are responsible for more payments yourself, HDHPs can introduce a shocking amount of paperwork into your life. Especially with HSAs, you must keep fairly robust records. If you choose a HDHP, make sure to keep careful accounts of all of your outlays.
