High Deductible Health Plans: What to Know
For many Americans, open enrollment is currently taking place, offering the opportunity for individuals to make changes to their benefits for the upcoming year, including health insurance.
Choosing a health insurance plan can be challenging. Whether it’s for you as an individual or for your whole family, there can be a number of pros and cons to weigh for each health plan option.
Often individuals are offered a choice between a traditional plan and a high deductible health plan. Not familiar with a HDHP?
Here are details on potential benefits, including the opportunity to use a Health Savings Account (HSA).
What is a High Deductible Health Plan?
A high deductible health plan is commonly referred to as an “HDHP.” As indicated in the name, it is a health insurance plan that has a higher deductible than a traditional insurance plan, meaning individuals will pay more upfront for medical costs until they meet the deductible. Once the deductible is met, coverage will begin.
The deductible that needs to be met before insurance coverage starts is different for individuals and family plans. For 2019, the minimum annual deductible for an individual is $1,350 and $2,700 for family HDHP coverage.
For 2020, the minimum annual deductible for an individual is $1,400 for self-only and $2,800 for family HDHP coverage.
In general, the higher the deductible, the more the individual will pay out-of-pocket to access full coverage until they meet the deductible. While the deductible is higher, these plans typically have a lower monthly premium than traditional plans.
The traditional health plan participant will generally have a low deductible but will pay higher monthly premiums. The high deductible health plan participant will generally have low monthly payments but have higher deductibles.
Because of the higher deductible and potential for higher out-of-pocket expenses, HSAs were established to help you save to cover these costs.
|2019 HDHP &HSA Facts||Individual||Family|
|HDHP Minimum Deductible||$1,350||$2,700|
|HDHP Maximum Out-of-Pocket Expenses||$6,750||$13,500|
|Maximum HSA Contribution||$3,500||$7,000|
|2020 HDHP & HSA Facts||Individual||Family|
|HDHP Minimum Deductible||$1,400||$2,800|
|HDHP Maximum Out-of-Pocket Expenses||$6,900||$13,800|
|Maximum HSA Contribution||$3,550||$7,100|
*Age 55 or older can contribute an additional $1,000
Who should consider an HDHP?
Although choosing between a high deductible and a traditional health plan will depend on a variety of factors, there are certain circumstances when particular individuals should consider HDHPs for themselves or their families.
If you are in good health and have the ability to save money, an HDHP could be an option for you. In addition, if you typically don’t need maintenance prescription drugs and have not had or anticipate any significant medical expenses, such as surgeries, throughout the next year, an HDHP might be an option for you.
Most of us don’t anticipate needing extensive medical treatment but if you’re planning a pregnancy, for example, a traditional plan could be a better option for you because of the lower deductibles and copays, however, if you choose the HDHP, you have the opportunity to take advantage of an HSA to offset costs.
The Value of the HSA
When strictly comparing deductibles, a traditional health plan might seem more advantageous, however the ability to have an HSA is a key benefit of an HDHP. Some may consider paying a little more money upfront for out of pocket medical expenses as a negative.
By saving the difference that would have been spent paying for traditional health premiums in an HSA the funds can potentially grow in a tax-free environment to cover those circumstances when it’s necessary to pay out-of-pocket medical expenses..
If you’re paying a premium of $575 per month for an HDHP and you’d be paying $680 for a tradition health plan, you can invest the $105 difference into an HSA to pay for qualified medical expenses. If you don’t use the funds that you’ve saved in an HSA throughout the year, the money in your HSA will rollover to the following year, unlike an FSA (flexible spending account).
An HSA for the Future
Another strategy unlike the example above, you could consider saving the money in an HSA until you retire and use it to cover medical expenses later in your life.
Medical expenses you can cover with an HSA include dental treatment, long-term care, prescription drugs and laboratory fees to name a few examples.
Your HSA stays with you, even if you change jobs. Keep in mind, if you later decide to enroll in a low-deductible (traditional) health plan, you will no longer be eligible to contribute to your HSA.
For 2019, the IRS established that the HSA contribution limit for an individual is $3,500 and for family coverage the limit is $7,000.
For 2020, the contribution limits for HSA increased. For individuals with self-only HDHP coverage, the limit is $3,550. For indiivudals with family HDHP coverage, the contribution limit is $7,100.
However, with a self-directed HSA, it’s possible to invest the funds in traditional or alternative investments, such as real estate, to increase the amount of money you have in an HSA.
Growing Your HSA
An HSA that is self-directed allows you to invest in stocks, bonds, real estate, precious metals and other alternative assets within your health savings account.
These are not considered contributions and can assist in growing your HSA in a tax-advantaged environment to cover qualified medical expenses now or in the future when you retire.
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