What is a High Deductible Health Plan (HDHP)?4 min read • June 29, 2017
High deductible health plans aren’t win-win, but they are becoming more common with employers so if you don’t have one yet, it’s likely you will in the near future. They do create opportunities for greater flexibility and increased fiscal health security for the long term. Let us show you how to use high deductible health plans to your advantage.
What is a High Deductible Health Plan (HDHP)?
A High Deductible Health Plan (HDHP) is a healthcare plan traditionally defined by lower premiums and higher deductibles.
High Deductible Health Plan (HDHP) Requirements
In order for your healthcare plan to be considered a qualifying high deductible health plan, it must have an annual minimum deductible of $1,300 for individuals and $2,600 for families (for 2017), the annual out-of-pocket maximum can’t be more than $6,550 (individuals) and $13,100 (families), and the health insurance plan must be so that the individual pays the first cost of healthcare up to the deductible before any kind of insurance kicks in (preventative care excluded from this definition). The deductible and maximum out-of-pocket expenses are indexed annually for inflation.
Why it Matters?
As healthcare costs rise and healthcare coverage becomes less synonymous with full-time employment, high deductible health plans are growing at rapid rates. Did you know the number of employees enrolled in deductible health plans has increased 20% in the last two years? These plans are becoming more and more common in the healthcare market and are changing the way we think (and act) in relation to health coverage and care. This growth is driven by increasing healthcare costs incurred by employers and a need to cap increases in employee benefits costs. Simply put, healthcare costs are affecting the bottom line of your employer. All expectations are HDHP plans will continue to grow, so if you aren’t currently using one, there is a strong likelihood you will be in the near future.
How to make a High Deductible Health Plan work for you
If you just started on a high deductible health plan or have been using one for years, there is no question that higher deductibles are a tough pill to swallow. On top of that, “lower premiums” are a bit vague and from all of the empirical data we can collect, that term sure isn’t what it used to be. Premiums continue to climb annually. As you can see from the HDHP growth data above, you are not alone. In fact, this sandbox is getting more and more crowded. The good news is, this type of health plan does offer some unique flexibility and opportunity that traditional healthcare plans lack. Let’s dive into a few benefits you might not know about:
- Flexibility – If you have ever used an HMO healthcare plan, you know the frustration of having to drive 30 min out of the way to see your primary care physician. While HDHPs still have in and out of network designations, the overall offering likely has more care and provider options, so taking little Johnny to the doctor (and even the best doctor in your area) just got easier.
- Out-of-Pocket – In the short term, this is going to cost you more. It’s frustrating. With HDHPs you are responsible for 100% of healthcare costs within your policy period (often 1 year) until you reach your out of pocket maximum. Take comfort that once you have reached your maximum out-of-pocket costs for that policy period, a 100% of all medical expenses are covered. Make sure you read the fine print for your HDHP, there are often differences in out of pocket limits for in network vs. out of network and even for certain health procedures.
- Health savings for the long term – Traditional healthcare plans are limited by employment or policy term (likely 1 year). It’s nearly impossible to plan for your health future with these limits. While HDHPs don’t solve this problem, the greatest feature of HDHPs is the ability to add an HSA (health savings account). With an HSA, you have a long-term health savings solution. If you aren’t familiar, it’s like a 401k for your health and that you own and can be used for health-related expenses this year, next year or for years to come. With all of the financial uncertainty that comes with health and healthcare, it’s great to have a health savings account that mediates some (or all) of your financial burden. HSAs are unique in that fact that they stay you. You own them and they can prepare for you for any unknown health costs. And in case you don’t need it, you can use that money, tax-free, after you turn 65, for any expenses, just like a 401k or IRA. Wow!
While high deductible health plans aren’t a win-win by any stretch of the imagination, they do have unique differentiations from traditional healthcare plans that you can (and should) take advantage.