UPDATED: MAY 12, 2023 | 3 MIN READ
Choosing the proper health insurance plan can be mind-boggling. It can be difficult to decide which is best between PPOs, HMOs, and high-deductible plans. Let’s look at these plans and why it could be a good option for you and your family.
What is a high-deductible health plan?
A high-deductible health plan is health insurance with lower monthly premiums but a higher deductible. However, not all insurance plans with a high deductible are considered accurate health plans.
The government sets specific regulations to define high-deductible plans because it’s the only type of plan that can have a health savings account attached to it.
How does a high-deductible health plan work?
Every month you pay health insurance premiums for your health coverage. This is true with any health plan. However, your premium is lower than those of HMO and PPO plans with high-deductible plans.
Because you pay less monthly for your plan, you have a higher deductible. This means you pay your medical bills before the insurance covers the medical expenses until your deductible is met.
For example, if you have a $6,000 annual deductible, you pay the first $6,000 of your medical care for the year, and then your health insurance company starts footing the bill.
Free preventive care (in some cases)
Although you have a higher deductible, you can typically get preventive care at no cost, even if the annual deductible isn’t met. All marketplace plans offer selective preventative care options at no cost.
Private insurance companies can have a co-pay for preventative care services, like physicals, breast exams, and colonoscopies, but your high-deductible health plan still covers them before you meet your annual deductible. Preventive care includes (but is not limited to) services such as:
- Annual check-ups
- Screenings for different cancers
- Screenings for hereditary or metabolic diseases
- Vaccines and immunizations
- Screening for depression and other mental health issues
Additionally, the IRS has expanded coverage options in recent years to add pre-deductible coverage for some chronic illnesses and medications. This includes insulins, beta-blockers, SSRIs, and other medications used to treat specific chronic illnesses.
Benefits of a health savings account
Once you enroll, you can open a health savings account. Fund this account with a portion of or the maximum annual contribution allowed by the IRS, tax-free. Money in a health savings account is used to pay for services before the deductible is met. This includes paying for co-pays, medications, and even over-the-counter medical supplies.
Pros and Cons
When considering your insurance options, reviewing the plan’s pros and cons is always best.
- Lower monthly premiums
- Tax-free health savings account
- Your health savings account balance rolls over each year so you can save for services you might need later in life.
- Networks aren’t as narrow as those of HMO plans
- Higher deductible
- Accidents or emergencies could result in high medical bills
- If you’re managing a chronic illness, your out-of-pocket expenses might be more than you can afford
How Does a High-Deductible Health Plan Work With an HSA?
Since these plans are the only type of health insurance coverage eligible for the tax breaks using a health savings plan is a good idea to take advantage of having one.
The funds in your HSA account can then be used to pay for medical bills you receive before the deductible is met or for services not covered by the insurance plan, such as dental or vision. They can also be used to pay for medication or over-the-counter medical supplies.
Setting up an HSA account
To set up this plan, you must find a financial institution that handles this account. After you set up the account, money is taken directly from your paycheck before taxes are calculated and deposited into the account.
If self-employed, you contribute directly to your HSA account whenever possible. But you have to be mindful not to exceed the annual contribution amount.
Using your HSA account
The account can pay for medical expenses before the deductible is met. They can also be used for services not covered by the insurance plan, such as dental or vision.
In most cases, the financial institution gives you a debit card with the HSA account that you can use only for qualified medical expenses. Sometimes, you might have to submit receipts and wait for your HSA to reimburse you.
Limitations and rollovers on your HSA account
The IRS sets a maximum contribution amount for HSAs each year. For 2022, the maximum contribution is $3,650 for individuals and $7,300 for families. The catch-up contribution amount for people age 55+ is $1,000. The amount you contribute rolls over each year, allowing you to save for more expensive medical situations if needed.
Who is a high-deductible health care plan best for?
Healthy young people benefit the most from these health plans and healthy people who rarely go to the doctor outside of their annual physical exam. They can take advantage of the low monthly premiums and get their annual check-ups and screenings done at no additional cost or for a small co-pay, depending on their plan.
What’s the main benefit of a high-deductible health plan?
The main benefit is the lower monthly premium. This especially benefits young, healthy people who don’t need to visit the doctor often because it saves them monthly money.
What is the main drawback of a high-deductible health plan?
The main drawback is the high deductible. If you have health issues requiring regular medical services, you have to pay for them out-of-pocket until the annual deductible is met.
How much does a high-deductible health plan typically cost?
The cost varies depending on the coverage amount and deductible you select. However, for 2022, the average high-deductible health plan premium for an individual is $7,441 and $21,662 for families.
What’s considered a high-deductible health plan?
To be considered a high-deductible health plan by the IRS and the government, the deductible must be at least $1,400 for an individual and $2,800 for a family. Also, the plan must allow the insured to have a health saving account to cover expenses until the deductible is met.
Are there high-deductible plans for Medicare?
Yes, there are two high-deductible plan options with Medicare Supplement plans. This includes the HD version of Plan G as well as the HD version of Plan F.
How to Find a Good High-Deductible Insurance Plan
It’s possible to save money with a high-deductible health plan. You just need to find the right one for you. Get health insurance quotes from several companies to ensure you find the coverage you and your family need.