The passage of the Affordable Care Act (ACA), also known as ObamaCare, created a lot of changes in the health care market. Along with setting up an insurance marketplace in every state, the law included requirements that expanded the required coverage in insurance plans. As a result, some insurance plans went up in price significantly, leading both companies and individual Americans to strongly consider high-deductible health plans.
Understanding a High Deductible Health Plan
A high-deductible health plan (HDHP) is a plan that offers insurance coverage only after a significant deductible is met. A deductible is the amount of money a consumer must spend out of their own pocket before the insurer pays any expenses. Until the deductible is met, a consumer pays both premiums and all health care costs. However, the ACA requires that insurers cover recommended preventive care without charging any type of cost-sharing, including a deductible.
The IRS establishes the parameters for these high-deductible plans. In 2015, a high deductible health plan must have a deductible of at least $1,300 per year for an individual and $2,600 per year for families, although most plans are much higher. The plans must also cap out-of-pocket spending, excluding monthly premiums, at $6,450 per year for individuals and $12,900 for families.
In order to make HDHPs accessible to Americans and their families, they are often used in conjunction with health savings accounts (HSAs). An HSA allows families to set aside money that can be used when a health need arises. It functions as a checking account for your current and future health needs. Your account stays with you year after year, and contributions are tax-free.
With a HDHP, even after the deductible is met you may have coinsurance requirements for medical services. Be sure to check your specific plan for details. A HDHP is ideal for those who don’t expect to need much heath care, because premiums are low and the yearly spending cap protects you from a catastrophic health need. However, it’s still important to make plans to have the money available to cover the deductible if a need does arise.
Pros and Cons of a High Deductible Health Plan
Employers are increasingly offering HDHPs to employees in order to keep the business costs low and pass along the cost of health care to their staff. While many offer it alongside other health insurance options, an increasing number of companies are offering high-deductible plans as their only health insurance option. Both insurers and employers hope that employees with money on the line will shop around for the best cost in care, but doing so can be difficult, especially if the care is needed in an emergency situation.
One of the advantages of using a health savings account with a HDHP is that you own the money in the HSA, even if you change jobs. You control how the money is spent and can choose providers based on quality and cost of care. In addition, the money you put into a HSA to use for your insurance is tax-free.
One of the disadvantages is that health needs are very unpredictable. It’s possible to need care but not have enough saved in your HSA, or you may have several significant needs in a row and find yourself out of money. Information about health care quality and costs can be hard to find, especially if you’re in a time-sensitive situation. You may feel pressure to not get needed care due to the costs. You may struggle to set aside money in your HSA, and if you take money out of it for non-health related expenses, you will have to pay taxes on the withdrawn amount.
A HDHP is not for everyone. For Americans in generally good health who have the ability to set aside money for the large deductible, it can be a great way to save money on insurance costs. However, for those who are sicker or need more protection from insurance costs, another type of insurance will be a better option.