I previously mentioned that I had moved to a new high deductible health plan (HDHP) that my employer started offering during open enrollment.
I have had a few questions since around that declaration from people who were curious to know more about HDHP’s and I thought it may be beneficial to dedicate a post towards the topic.
What is an HDHP?
An HDHP is a type of health insurance plan that offers lower monthly premiums than more traditional plans like PPO’s or HMO’s in exchange for a higher deductible – hence the name “high deductible health plan”.
They are usually paired with a health savings account (HSA) that allows you and/or your employer to make tax deductible contributions to. You can later use the HSA to pay for your medical expenses, tax free.
More on HSA’s later.
What is a Health Insurance Deductible?
A health insurance deductible is the amount that you must pay before health insurance kicks in and starts paying. The deductible is an annual amount that usually resets at the beginning of the calendar year.
Once you’ve hit your annual deductible, then your insurance kicks in and starts helping. The HDHP may pay 80%, 90%, 100%, etc. of your health care costs at that point – it will vary based on your individual plan.
The minimum HDHP deductible amount as dictated by the IRS are:
2018 minimum HDHP deductibles:
- $1,350 per individual
- $2,700 per family
If you have an HDHP, your insurance will not kick in until you hit at least these minimums. Some HDHP’s may have higher deductibles than this.
What are HDHP Maximums?
A HDHP out-of-pocket maximum, or OOP’s, is the maximum amount you or your family are required to pay in any given year, before the HDHP covers any additional medical costs 100%.
This is important because if you have a high cost event or series of events (i.e. car accident, heart surgery, maternity), your out-of-pocket maximum protects you from serious financial hardship and possible bankruptcy.
The IRS HDHP maximum out-of-pocket limits for deductibles/co-pays for 2018 are:
2018 HDHP Maximum Out of Pocket Limit (ACA compatible):
- Single Plan: $7,350
- Family Plan: $14,700
2018 HDHP Maximum Out of Pocket Limit (HSA compatible):
- Single Plan: $6,650
- Family Plan: $13,300
Remember, HDHP’s are tied to HSA’s, and with that comes the ability to contribute to a tax-deductible account. The IRS HSA maximum contribution limits for 2018 are:
2018 HSA Maximum Contribution:
- Individual Plan: $3,450 (+$50 over prior year)
- Family Plan: $6,900 (+$150 over prior year)
As with 401K’s there is a catch up contribution for those age 55 and over. They are as follows:
2018 HSA catch-up contribution:
- $1,000 for both single and family plans
Your plan’s maximums may be lower, each plan varies.
Is a HDHP Right for me?
It depends. HDHP’s are generally great for those under 50 who have no serious documented health complications because the monthly premiums can be significantly lower than traditional HMO and PPO plans.
And if you’re in good health, your out-of-pocket expenses are likely going to be low. I ultimately made the switch because I am young and haven’t had more than 1 or 2 doctor visits in any given year in the last decade (knock on wood). This means that I probably haven’t spent more than a few hundred $ in any given year on health related costs.
I’m also in the situation where my employer offers an HSA with their HDHP and contributes an amount equal to my annual deductible to it. Anything I don’t spend rolls over every year, and in a few years I would have enough to cover an annual out of pocket maximum. Plus my premiums are lower with the HDHP vs. a PPO. So it makes a lot of sense for me.
These are the things you should be considering when deciding to switch to a high deductible plan:
- What is my present health?
- What will my annual deductible be?
- How do the premiums compare to a standard plan?
- What is the maximum out-of-pocket?
- Where can I find a HDHP?
If you are young and healthy, it is generally financially beneficial to view health insurance as a means to cover you in the event of very high cost events versus a way to cut the costs that may occasionally come up because you may end up paying more for your premiums than you are saving.
Where can I Find HDHP’s?
Check to see if your employer offers a HDHP and what the associated premium, deductible, and maximums are. Some employers offer HDHP’s, others do not.
Even if your employer does offer one, ALWAYS compare it to what is available on the free market. In many cases you will be able to find a cheaper alternative than what your employer offers.
Check the public health insurance exchange at healthcare.gov for public plans. You may be eligible for a subsidy with these plans. If you are not eligible, also check out eHealthInsurance.com. It’s an aggregator that compares the prices of dozens of insurers, which is key because prices can vary wildly based on age, gender, and health history. You need to shop around. I found my term life insurance plan there and have compared HDHP’s there too.
HDHP Discussion:
- Do you have an HDHP? How long have you had it? What has your experience been?
- What are your HDHP premiums, deductibles, and maximums?
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So helpful! The HDHP plan is becoming very popular, especially for younger people or those who don’t go to the doctor much. The HSA is a very attractive option and I think that’s part of the reason why so many people are making the switch. All about finding the right plan for you.
I’ve had a HDHP for 3 years and I love it. I’m young-ish and don’t go to the doctor often (I did have to go to the ER once and that was a bummer, but completely unusual.) My employer contributes $1300/year to my HSA (lump sum in January! My previous employer also contributed but split it between January and July.) I also contribute up to the max allowed. I want braces one day and it is an easy way to save up the money for them. Also, it lowers my taxable income slightly, which is nice come tax time. Lastly, once I get to $1,000 in my HSA I can invest it. I won’t be ready to do that until after the braces, but I am looking forward to that perk! It’s not for everybody, and I might not choose this plan if I had kids, but for me it works really well.
I switched employers several months ago, and I have found that the HDHP ends up costing me significantly more money than my old PPO plan at my old employer. I have a (single, non family) deductible of $3000, and this is the only plan my new employer offers. For example, doctors visits are around $80 for a PCP, it costs $70ish to see a therapist, and my CPAP machine (I have sleep apnea) costs around $100/mo for the machine and supplies. It also cost $300 to be diagnosed with this, too. My medication costs around $30 or so per month (they’re generics). I really wish that I had another option because I feel that the HDHP is not a good choice in my situation. Because of all of these costs, I am also forced to delay care at times too. I am not sick enough to hit the deductible, but I am sick enough for it to make a significant dent in my budget.
Not all employer plans are created equally, unfortunately. The max out of pocket deductible varies, and is key.
Unless I’m totally off base another advantage of the HSA is the contributions lower your adjusted gross income – a valuable benefit if you are close to the limit of the medical premium tax credit. For me it potentially saves $13000 in premiums when shopping on the healthcare marketplace.
And actually (again if I’m not totally missing the plot) if you are going to have high medical bills and will most likely reach your OOP maximum (as those with expensive drugs will most likely meet) the HDHP plans are actually on-par or cheaper when you add up the premium cost and the OOP max.