“HIGH-DEDUCTIBLE health plan? No way!”
Did you think like this when enrolling in benefits for this year and opt into one of the other insurance choices? We wouldn’t blame you – the name alone doesn’t make this health plan type sound too appealing. We’re here to tell you that you might want to consider switching next year…in the right circumstances.
But first…what IS a deductible? In simple terms, a deductible is the amount you pay out-of-pocket for health care expenses before your health insurance starts paying. This isn’t even factoring in any other forms of cost-sharing. Your plan may also have:
- Co-payments – Fees you may pay for a particular service (e.g., a fee charged when you visit the doctor)
- Coinsurance – The percentage you are required to pay of a service fee (e.g., you must pay 40% of the doctor’s office visiting fee, while insurance covers the rest)
When should you consider a high-deductible health plan (HDHP)?
1. You want lower premiums.
A premium is the amount you pay for your health insurance every month regardless of whether or not you’re using it. Yes, going with a HDHP over a Point of Service (POS) or Preferred Provider Organization (PPO) plan DOES mean a higher deductible. However, it also often means a lower premium. This is great for people who fit into the next category…
2. You don’t expect to use your health benefits much in the coming year.
If no one in your family has any pre-existing medical conditions, it’s possible you’re only heading to the doctor’s office when it’s time for an annual check-up or to get your flu shot. Did you know that these two things are considered preventative care? Along with other things like cancer screenings, routine prenatal care visits, and vaccines for illnesses like chickenpox, you won’t have to pay anything thanks to the Affordable Care Act.
“But what if there’s an unexpected, emergency health expense?”
That high-deductible you’d have to pay doesn’t matter as much if you have funds in a pre-tax account to rely on. This brings us to our next reason…
3. You want an HSA-eligible plan so you can save on healthcare costs.
A Health Savings Account (HSA) is a pre-tax account that you can only contribute to if you are on a HDHP. Like other pre-tax accounts, money is added into the account before taxes are applied, passing on savings of 30-40% to you! Here’s what makes the HSA unique:
- YOU own the account. This means you can take it with you if you switch jobs.
- Accounts can be funded by you, your employer, or even a third party.
- Contributions limits for an HSA are higher than contribution limits for a Medical FSA.
- You can change your HSA contributions at any time without needing a qualifying event.
- The funds carryover from year to year so you don’t have to worry about losing them.
- Investment opportunities are available to you once you have a certain amount of money in your account.
- Triple-tax benefit. Funds are deposited into the account tax-free, they grow tax-free and they remain completely tax-free when used for eligible medical expenses
Unfortunately, you don’t automatically qualify for an HSA just because you’re signed up for a HDHP. You also can NOT:
- Be covered by another non-HSA compatible plan
- Be enrolled in Medicare
- Have a Medical FSA (Limited Purpose FSAs are compatible though!)
Don’t worry though – if at any point you become ineligible to contribute to an HSA, you can still continue to use the funds in your account until they run out.
Is your medical expense more than your HSA balance? Check with your employer to see if they offer an HSA BRidge. This will enable you to access future scheduled HSA deposits before you’ve built up a balance. You can also pay for the expense with another payment source and reimburse yourself later when funds are available.
High-deductible health plan aren’t that scary…consider them Low Premium plans!
Remember the following when Open Enrollment rolls around:
- Only participants with an HDHP can participate in the all the HSA perks.
- Contribution limits are higher for an HSA (2021 – $3,600 single / $7,200 family coverage) than an FSA ($2,750)
- A HDHP may not be the best option for you, if you have a chronic medical condition and frequently visit your doctor.