What is a High Deductible Health Plan?
High Deductible Health Plans
High Deductible Health Insurance Plans and Health Savings Accounts
Health insurance can be an expensive business and with the ongoing effects of the
economy hitting every American in their pocket, taking a long hard look at your
outgoings may bring some benefits.
Whilst health insurance is an essential which should never be overlooked, it is
possible to save money by switching to a high deductible health plan which has an
attached health savings account running alongside.
It is not possible to have a health savings account without a qualifying high deductible
health plan - also known as a HDHP - but there are many providers on the market
offering this type of product.
HDHPs on their own offer a substantial premium saving, because the individual has
to pay for the first chunk of their healthcare, before any insurance kicks in and
covers the cost. As the name of the plan implies, the deductible is set fairly high,
which is the primary reason why the premium rates on this type of cover are so low
compared to other insurance plans.
The IRS decide what the minimum deductible on a plan must be to qualify as a HDHP
and for 2010 this limit was set at $1200 per annum for single person cover and $2400
per annum for plans which cover both the individual and their family.
This is a lot of money to find to pay for medical costs and you would have to be
pretty well off to be able to pay for this level of fees without findings things
pretty tough financially. This is where the Health Savings Account helps.
The HSA sits alongside the HDHP and accumulates savings which can be used to pay
for the deductible in the event qualifying medical care is needed. Any withdrawal
from the fund to pay for allowable medical costs is permitted tax-free and contributions
are tax-advantaged.
The underlying principle is that the HDHP allows insurers to provide low cost insurance
by accepting a high deductible but the potential cost of the deductible is off-set
by the savings.
One of the real benefits of HSAs compared to other kinds of plans is that the money
belongs to the individuals and rolls over from year to year if unused. It can also
be withdrawn and used for non-medical expenses but if this is done, it becomes taxable
plus a penalty, currently set at 20%, applies.
Those individuals who accrue a large balance are entitled to withdraw it once they
reach age 65 without any penalty and will just be taxed on the income, like any
other retirement plan.
With so many different variables it is difficult to get a definitive answer about
how much cheaper a HDHP is compared to other types of health insurance but best
guesses put the savings at around 50-60%, a very considerable difference.
It is very easy to continue with the health insurance plan you already have in place
but the beauty of the HDHP and HSA plans is that they combine health insurance with
savings, as well as providing tax advantages. For those concerned about their money saving money by switching insurance
plans is a simple way to free up some cash.
