What is a High Deductible Health Plan (HDHP)?

There is no such thing as a one-size-fits-all health plan. Everyone has different health insurance needs depending on their health care requirements along with those of their dependents. One plan is the standard deductible/copay/coinsurance health insurance (often called a “traditional” health insurance plan). Another option for some people is the High Deductible Health Plan (HDHP) paired with a Health Savings Account (HSA). 

Traditional Plans vs. HDHPs 

When it comes to how plans are set up, traditional and HDHPs are similar. Under both plans, the member pays a premium for coverage. The Affordable Care Act requires both to cover preventive services at no member cost share. If a member receives care other than preventive medical care, he or she may pay a copay/coinsurance, or the services may be subject to a deductible. A deductible is a specified amount the insured must pay before an insurance company will pay for services (see your plan summary/description for specific details).  

The minimum deductibles for HDHPs are established by the IRS. For 2022, the minimum deductible is $1,400 for individuals and $2,800 for families. Traditional plans can come with varying deductibles. 

What sets HDHPs Apart? 

Plan Design 

There is one major thing that sets HDHPs apart from a traditional plan – plan design. The plan design for an HDHP all services except for preventive services are subject to the deductible. Depending on the deductible and/or plan design an HDHP may also be a cheaper premium. Why? Well, because the member is responsible for all services until the deductible has been satisfied. This differs from the traditional plans as the member may only have a copay or coinsurance for certain services instead of being responsible for the entire deductible.  

HDHPs can be beneficial for members who use little or no medical care during the year. Insured people who have HDHPs still remain compliant with the individual mandate provision of the Affordable Care Act (ACA). 

Health Savings Account HSA 

The second major factor that sets HDHPs apart from traditional plans is the addition of an HSA. HSAs are one of several types of tax-advantaged health accounts. They are exclusively available to people enrolled in an HSA-compliant HDHP. 

With an HSA, the account holder or his or her employer (usually both) can make contributions into a savings account. No taxes are deducted from the money in the account.  While in the savings account, the money can earn interest. The employee is free to spend that money on qualified medical expenses. 

The total amount that can go in an HSA per year is capped by the IRS. For 2022, the maximum contribution limit is $3,650 for individuals and $7,300 for families. However, account holders over 55 years old may contribute an extra $1,000 to those totals. 

These limits are significantly higher than other types of tax-advantaged health accounts. HSAs have additional unique features that allow you to save more money and keep it over a longer period of time. Whereas funds in health Flexible Spending Accounts (FSAs) and Health Reimbursements Arrangements (HRAs) come with an expiration date or a maximum carry-over dollar amount. Except for the cap on total contributions per year, there are no limits on how much money can be in your account and how long it remains open. 

Additionally, you own your HSA account! This means employees take the account with them if they leave their employer. This includes any employer contribution made towards the account.

Using Health Care with an HDHP  

Because of the high deductibles associated with HDHPs, you need to become a smart health care shopper. The most important thing to keep in mind is that some types of health care products and services cost much more than comparable items. The more expensive option may not be necessary for the treatment you require. 

Additionally, like traditional ACA compliant health plans, ACA compliant HDHPs cover preventive services at no cost. Preventive care is medical checkups and tests, immunizations, and counseling services – the goal is to prevent chronic illnesses from occurring.  

Most types of specific preventive services are listed here. Sometimes it can be difficult to determine if a specific medical service is preventive. Feel free to call your health plan provider to learn if a service is preventive before receiving it. 

Medical Savings Strategies 

Other medical savings strategies people with HDHPs should consider are: 

• Prescriptions. Using a generic in place of a name brand prescription can result in significant savings. While there is not a generic version for every type of drug, the only difference between a branded drug and a generic counterpart is the name; they both have the same active ingredients. If you need medication, find out what class of drugs your prescription is classified under. If you receive a name brand prescription from a doctor, ask if a generic is available.  
• Emergency Room vs. Urgent Care. Like prescriptions, there is a sizable cost adjustment between emergency rooms and urgent care. It is expensive for hospitals to support all the equipment and staff that an emergency room requires. Visits to the emergency room generally cost much more than those to a doctor’s office or an urgent care center. If you need treatment quickly, try going to an urgent care clinic. However, if it is life-threatening or risking disability then the emergency room should be your choice. 
• Qualified Medical Expenses. Use your HSA to pay for qualified medical expenses without paying taxes. Qualified medical expenses include the costs of diagnosis, cure, mitigation, treatment or prevention of disease, and the costs for treatments affecting any part or function of the body. These expenses include payments for medical services rendered by physicians, surgeons, dentists, and other medical practitioners. They also include the costs of equipment, supplies and diagnostic devices needed for these purposes. Like preventive care, there can sometimes be uncertainty surrounding what is an allowable qualified medical expense. Specific qualified medical expenses are approved by the IRS, and a list of them can be found here. 

HDHP Recap 

HDHPs and HSAs are not the ideal health coverage plan for everyone. However, for many people, HDHPs may be a terrific way to avoid paying for unnecessary coverage. HSAs are an excellent vehicle for stockpiling tax-free money to use on future health care needs. 

That was a lot of information and could be hard to sort it all out. If you would like to talk about your current health plan, we would love to talk to you. Please email team@thamsagency.com and one of our team members can help you.