Although HDHP (High Deductible Health Insurance) is very attractive with low premiums, it has high out-of-pocket costs when medical care is required. This article examines the benefits and drawbacks of HDHPs so you can determine if it’s right for you.
What is High Deductible Health Insurance?
High Deductible Health Insurance plan offers lower monthly premiums but with a higher deductible. A deductible is the amount you need to pay for healthcare before your insurance covers the cost. This is a plan for someone who doesn’t necessarily plan to use their health insurance frequently but wants to be covered in case of catastrophic events.
Key Features:
- Lower premiums: Lower monthly payments.
- Higher deductible: You pay more up front before insurance coverage begins.
- HSA eligibility: You can set up a Health Savings Account (HSA) to save for medical expenses.
Advantages/Pros of High Deductible Health Insurance
1. Lower Monthly Premiums
The biggest advantage of HDHPs is the lower monthly premium. If you’re generally healthy and don’t need ongoing medical care, an H.D.H.P. can offer you a savings on premiums compared with traditional health plans.
2. Benefits of a Health Savings Account (HSA)
HDHPs let you establish an HSA, a tax-advantaged account. You can put pre-tax money in to pay for medical expenses, and the money rolls over every year. It can be a great way to save for out-of-pocket healthcare costs down the road.
3. Coverage for Significant Medical Expenses
Yes, the deductible can be high, but the HDHPs protect against major medical expenses. After the deductible is met, the plan generally pays for the majority of healthcare expenses.
4. Greater Control Over Healthcare Expenses
An HDHP means you have more choices about where to get care. This gives you the freedom to compare prices and find out what works within your budget.
Disadvantages/Cons of High Deductible Health Insurance
1. High Out-of-Pocket Costs
The major downside of HDHPs is the high deductible. You will have to personally meet a lot of your healthcare costs upfront, which might add a financial burden on you, especially when you have unpredicted healthcare needs.
2. Not for Individuals Who Have Existing Illnesses
For those needing chronic conditions or regular medical care, HDHPs could be less than desirable. This can incur a high deductible before coverage takes effect, resulting in large out-of-pocket costs.
3. Before The Deductible Is Met, Limited Coverage
Many people struggle to pay it since you need to have at least 2–3k in pocket to be covered by your insurance. Until then, all medical expenses are on you.
4. Possible Delay in Getting Care
High out-of-pocket costs may cause some people to postpone seeking care they need. This can result in poor health conditions over time, especially when preventive care is avoided.
How Does High Deductible Health Insurance Work?
1. Healthy Individuals
HDHPs make sense for healthy individuals who don’t need to see a doctor often or get prescription drugs. If you’re young and healthy, you can get by paying less in premiums, and only using the insurance in the event of an emergency.
2. Interest in Health savings Accounts
To use an HSA to save for medical expenses, you need an HDHP. The tax advantages of an HSA can be particularly appealing to many people.
3. Those Who Can Pay the Deductible
The OPPS are more appropriate for those who have sufficient savings to meet the high deductible in case of an emergency. If you can handle the possible out-of-pocket expenses, an HDHP can be a good option.
When to Steer Clear of High Deductible Health Insurance
1. Individuals with Chronic Conditions
If you have a chronic medical condition or expect to need routine medical care, a high-deductible health plan is likely less beneficial for you. You could end up spending thousands of dollars before your insurance kicks in for medical expenses.
2. Families with Young Children
Families with young children are no strangers to surprise medical visits. Due to the potential for frequent visits, for families still using the high-deductible plan option they may struggle with their healthcare costs in these years while a young child or children are growing.
3. Those Who Cannot Afford the Deductible
If you can’t comfortably afford the high deductible, you should probably pass on an HDHP. It’s important to have the financial flexibility to pay out of pocket, particularly if a major medical event happens.
Conclusion:
Is High Deductible Health Insurance for You?
If you’re healthy and infrequently seek medical help, High Deductible Health Insurance can be a fantastic choice. This opens up a HSA, allowing you to save that money tax-free to use for qualifying health expenses. The lower premiums make it a financially beneficial choice for many people. The high deductible and the possibility of large out-of-pocket costs, however, may not make it a good option for people with chronic health conditions or families with young children.
FREQUENTLY ASKED QUESTIONS (FAQs)
1. What qualifies a health insurance plan as having a “high deductible”?
A high deductible health insurance plan has a higher deductible compared to traditional plans. This means you pay less for premiums but have to spend more on your own for care before your insurance kicks in.
2. Am I eligible to contribute to an HSA with a HDHP?
Yes, as an HSA holder you can open and contribute to a Health Savings Account (HSA) — a tax-advantaged way to pay for valuables related to medical expenses.
3. Is HDHP good for families?
HDHPs can make sense for families that are overall healthy and don’t foresee needing a lot of medical care. But if your children need regular doctor visits, the high deductible can be a financial burden.
