By - April 1, 2016

What is a High Deductible Health Plan?

High Deductible Health Plan

Health care plans come in many different forms and fashions. In terms of health care benefits, companies may offer several different options for an employee’s health care plans; to this degree, many organizations are beginning to provide the option of a high deductible health plan (HDHP).

What is a high deductible health plan?

As with many things concerning health care plans, HDHPs have their own unique advantages, disadvantages, and stipulations. Any employee considering a high deductible health plan should carefully review their insurance provider’s policy before electing to take the plan, in addition to evaluating their own needs in terms of health and finance.

Advantages and disadvantages of a high deductible health plan?

Many people elect to subscribe to high deductible health plans because of the low monthly premiums of such plans. For individuals looking to keep more of their paycheck each month, an HDHP can seem especially appealing.

Under the Affordable Care Act, HDHPs also allow individuals to set up a special type of healthcare spending account, a health savings accounts (HSA). Money can be deposited into these HSAs on a “triple tax-protected” basis, meaning that:

  • The funds are withdrawn from the paycheck before taxes are taken out
  • Money collects interest and grows tax-free inside the account
  • No taxes are levied for withdrawals from the account so long as they are used to pay for qualifying medical expenses (of which there are hundreds)

A key aspect of the relationship between HDHPs and HSAs is that HSA funds roll over from year to year. Under an HDHP, there is no impetus or need to empty out the account when the calendar year is coming to a close.

As one might expect, the primary disadvantage of an HDHP is that the deductible is typically much, much higher than deductibles on other health care plans. In 2016, the minimum deductible for an individual is $1,300, whereas the minimum is $2,600 for families. HDHPs also present the risk of higher out-of-pocket maximums; $6,500 and $13,100 for individuals and families, respectively.

Is a high deductible health plan right for me?

As mentioned before, one of the reasons high deductible health plans are appealing is because they enable you to take home more of your paycheck each pay period. However, these type of high deductible plans are not suitable for everyone.

If you (or an employee) elects to use a high deductible health plan, you (or they) should do so with the understanding that building and funding an HSA will be an essential aspect of safeguarding against potential medical expenses. With the minimum deductibles at such high levels, families who are expecting any significant medical events might incur massive financial liabilities.

If you are unsure that you (or an employee) will be able to fund an HSA under an HDHP, it may be wise to consider going with a traditional health plan that carries a lower deductible. Although the reduced paycheck may come as an annoyance or obstacle, an HDHP might not be the best fit for certain unique circumstances.

Need help?

It’s essential to make sure your employees understand advantages, disadvantages, and even the realities of subscribing to a high deductible health plan. Proper education and training will save both your company and your employees countless headaches and potentially heartaches.

If you are considering adding a high deductible health plan to your employee benefits package, we can help. Education and decision support are key to introducing a new plan, especially if it’s a new type of plan like a HDHP. We combine our powerful and transparent decision support tool with our expert coaches to actively engage with their benefits and select the best health plan.

Learn more about our Decision Support & Benefits Communications solution or Contact Us.

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