What is a High-Deductible Health Plan (HDHP)?
A high-deductible health plan (HDHP) is a health insurance plan with a high deductible for medical costs. HDHPs often have higher yearly deductibles (four figures) but cheaper monthly rates than traditional health plans. Plans provide routine preventive care without copays or coinsurance. Minimum deductibles vary annually. The IRS defines an HDHP as having a $1,400 individual deductible and a $2,800 family deductible for 2022. The 2023 minimum yearly deductible is $1,500 for individuals and $3,000 for families.
How to Understand an HDHP
Before receiving insurance coverage, the insured must pay the deductible part of the claim. Per the contract, the insurance company pays the rest of a claim once a person pays that share.
HDHPs may cut healthcare expenditures by raising awareness of medical costs. Higher deductibles result in cheaper insurance rates and reduced monthly expenditures. This agreement provides coverage for primary health situations for healthy individuals. Wealthy families have access to a tax-advantaged health savings account by meeting the deductible.
These plans cover essential preventive treatment without copays or coinsurance before the deductible for the following (not exhaustive):
- BP checkup
- Screening for depression
- Diet and nutrition advice
- Screening for HIV
- Immunizations for chickenpox, flu, and measles
HDHP covers in-network services with an annual catastrophic out-of-pocket maximum. Plans have minimum deductibles of $1,400 and $2,800 for people and families, rising to $1,500 and $3,000 in 2023. The maximum deductible for 2022 is $7,050 for individuals and $14,100 for families (increasing to $7,500 and $15,000 for 2023).
Once you exceed this limit, your plan covers all in-network medical costs. If you consider this option, understand how HDHPs function and how they will impact your healthcare costs.
The 2003 HSA-establishing legislation led to a rise in HDHPs.
Special Considerations
One benefit of an HDHP is the ability to create a tax-advantaged health savings account (HSA). In reality, only HDHP members may use HSAs. To qualify, you can’t have other health insurance.
Insured individuals or employers make regular account contributions. These funds are not subject to federal income taxes upon deposit or withdrawal. Use them for eligible medical expenditures HDHPs don’t cover, such as:
- Acupuncture
- Deductibles
- Dental care
- Vision care
- Prescription drugs
- Copays
- Treatments for mental illness
- Other qualifying health insurance-uncovered charges
With high deductibles, an HSA can save money. HSA withdrawals for eligible medical costs not covered by the HDHP are tax-free.
Unlike an FSA, an HSA does not require spending or withdrawal within the tax year of deposit. Roll over leftover donations forever.
For self-insured wealthy families, an HDHP offers tax-advantaged HSA savings for retirement, eliminating the early withdrawal penalty for nonqualified spending.
Under-65s must pay income tax and a 20% early withdrawal penalty for nonqualified withdrawals.
HDHP Pros and Cons
HDHPs have pros and cons due to their high cost. Find some of the most prevalent below.
Advantages
HDHP insureds pay cheaper monthly rates. If you solely use the plan for preventative care, this can save you money. Stay within your network to benefit, or you’ll pay more.
Included persons can utilize an HSA with an HDHP. HSAs are tax-advantaged accounts that can cover eligible medical costs like acupuncture and dentistry, which your plan may not cover. HSA deposits are tax-free and might lower your high deductible.
Disadvantages
The biggest drawback is the exorbitant cost of these programs. Higher deductibles require spending more on medical and health care before the plan pays. This might drain your finances, especially if you have unanticipated health difficulties.
This plan has a high deductible, hence the name. The deductible is your responsibility before your insurer pays. However, your preventative care is fully covered; therefore, you’ll have to pay for the covered charges.
Pros
- Cheaper monthly rates
- Works with a tax-free health savings account for eligible medical expenditures.
Cons
- Higher out-of-pocket expenses
- Higher deductibles
Example of HDHP
As said, high-deductible health plans are suitable for healthy people who don’t require complicated medical treatments. They fit people who need preventative care.
A 30-year-old without health issues may qualify for an HDHP. This individual may need flu vaccinations, nutritional counseling, or health checks. They would not pay copays or coinsurance.
They may need to save for an unforeseen medical emergency since their plan won’t cover anything until they hit their deductible.
For an HSA, what is a high-deductible health plan?
You may combine your HDHP with a tax-advantaged HSA. You must be in an HDHP and have no other health insurance to qualify for an HSA.
High-deductible health plans cost what?
An HDHP must have a minimum deductible of $1,400 for individuals and $2,800 for families in 2022 (increasing to $1,500 and $3,000 in 2023). Maximum covered spending in 2022 is $7,050 per person and $14,100 per family (increasing to $7,500 and $15,000 in 2023). Individuals pay monthly premiums that vary per insurance.
High-deductible health plans cover what?
HDHPs cover preventative care, including blood pressure, depression, diet and nutritional counseling, HIV screening, chickenpox, flu, and measles vaccines. Insured people pay no copays or coinsurance for these services. There is no coverage for acupuncture, dental, or vision treatment. Remember that you can utilize an HSA with an HDHP to pay for eligible medical and dental costs to satisfy your deductible. Congress extended the list of eligible costs in the COVID-19 CARES Act. Using HSA money for nonqualified medical bills may result in income taxes and a 20% penalty, depending on age.
Providers of high-deductible health plans?
You can acquire HDHP through your workplace. Government healthcare marketplaces provide these plans.
Bottom Line
Choose a health plan that meets your medical and budgetary needs. Some plans require higher copays and coinsurance but start covering after a modest deductible. Others have greater deductibles but cheaper monthly rates. High-deductible health plans favor healthy people. Can afford more out-of-pocket and require preventative care. These plans’ cheap upfront costs may seem appealing, but you should also consider your medical history and budget before signing up.
Conclusion
- A high-deductible health plan offers cheaper monthly rates and a large deductible.
- Tax-favored health savings accounts are only for HDHPs.
- Younger, healthier people who only require emergency health insurance should get an HDHP.
- HDHPs may benefit wealthy individuals and families who can pay the high deductible and seek HSA advantages.
- HDHPs may cut healthcare expenditures by raising awareness of medical costs.
