High Deductible Health Plan (HDHP)

High-deductible Health Plans (HDHPs) are a type of health insurance plan characterized by lower monthly premiums but higher out-of-pocket costs before the insurance begins to cover expenses. In contrast, health insurance plans with lower deductibles provide more predictable costs and often include more comprehensive coverage, though they typically come with higher premiums.

Definition of “High deductible” can be found in Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans | IRS, an HDHP is defined under IRC §223(c)(2)(A).

An HDHP has:

• A higher annual deductible than typical health plans (Table 18.1), and
• A maximum limit on the sum of the annual deductible and out-of-pocket medical expenses that you must pay for covered expenses. Out-of-pocket expenses include copayments and other amounts, but don’t include premiums.

An HDHP may provide preventive care benefits without a deductible or with a deductible less than the minimum annual deductible. Preventive care includes, but isn’t limited to, the following.

HDHP plans are usually preferable due to combination of lower premiums, access to HSA and in some cases employer’s contributions to HSA. Do your math and compare plans. Both spouses shall use same type of plan — HDHP or non-HDHP.

Decisions to make:

1.

Determine who should be included in your plan. Should it cover your spouse, partner, or child? Note that parents and children over the age of 26, even if they are tax dependents, are not eligible.

2.

Estimate your medical usage and expenses. Do you have a chronic condition such as diabetes that requires ongoing treatment? How often do you need urgent or emergency care? How frequently do you visit doctors? Do you expect significant medical expenses in the future? Given the complexity of pricing medical expenses in the U.S., consider categorizing your usage as “rare except for emergencies,“ infrequent, average, or heavy.

3.

Consider whether you prefer an integrated medical system that simplifies the process of choosing doctors, billing, and storing medical records. If so, you might consider Kaiser (available only in California or Hawaii), which offers a network of doctors, on-site services like lab work and imaging, and minimal paperwork. Kaiser operates as an HMO and provides no out-of-network coverage except for emergencies.

4.

Decide if you want the most financially optimal plan, even if it means dealing with more complex billing issues. A high-deductible health plan (HDHP) could be an option; it features a high deductible, requiring you to pay the full insurance-negotiated price until you meet the annual deductible. With an HDHP, you are eligible for a Health Savings Account (HSA) and a Limited-Purpose Flexible Spending Account (LPFSA). Employers may also contribute to your HSA, potentially covering a significant portion of the deductible.

5.

If none of the options above seem suitable, consider a Preferred Provider Organization (PPO) plan. It generally has a higher annual and total cost compared to an HDHP, but the cost per visit is lower. The coverage is similar to that of an HDHP. You are eligible for a Medical Flexible Spending Account (Med FSA) with a PPO plan.

6.

Using your estimates from point 2, carefully read the details of the plans to ensure that the one you choose meets your medical needs.

Common mistakes:

• Not working through coverage details.
• Not paying attention to the complex differences in choosing medical care and in billing.