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High Deductible Health Plans (HDHP) can reduce premiums, and when combined with a Health Savings Account (HSA) they can provide investment opportunities and tax advantages with flexibility over how participants use their healthcare dollars.
An HDHP is a health insurance plan with low premiums and high deductibles (meaning participants pay for more of their health care before the insurance plan pays), compared to traditional health plans. With an HDHP, the annual deductible must be met before plan benefits are paid for services other than in-network preventive care services, which are fully covered.
How does an HDHP work?
In general, a health plan starts paying for eligible medical expenses after the deductible has been met, meaning members must pay out-of-pocket (OOP) up to the amount of the plan’s deductible. This applies to high deductible health plans, as well as traditional plans. The amount of the deductible depends on the plan selected.
HDHPs also protect against unexpected and catastrophic out-of-pocket (OOP) expenses for covered services. Once the annual OOP expenses for covered services from in-network providers, including deductibles, copayments, and coinsurance reach the pre-determined catastrophic limit, the plan pays 100% of the allowable amount for the remainder of the calendar year.
HDHPs are great for people who are healthy and usually go to the doctor once a year for an annual check-up or to get a flu shot (both of these are considered preventive care). As a result of the Affordable Care Act (ACA), no payment is required for preventive care for things like cancer screenings, routine prenatal care visits, and vaccines for illnesses like chickenpox.
What to Consider When Choosing an HDHP
When choosing between an HDHP and a more traditional insurance plan, consider the participant’s anticipated health needs. Are they likely to require medical care above and beyond preventive? If a participant has a long-term health condition or frequent medical needs, an HDHP will be ineffective. These participants will be faced with the high deductible constantly and will essentially be paying for all medical expenses OOP. If so, an HDHP plan with a lower monthly premium may not be an advantage — a more traditional plan with a higher premium and lower deductible might offer improved cost savings.
An HSA allows individuals to pay for current health expenses and save for future qualified medical expenses on a pre-tax basis. Funds deposited into an HSA are not taxed, the balance in the HSA and interest grows tax-free, and that amount is available on a tax-free basis to pay eligible medical expenses, including copays, coinsurance, and deductibles. When enrolled in an HDHP, the health plan determines whether the individual is eligible for an HSA or a Health Reimbursement Arrangement (HRA). Like other pre-tax accounts, money is added into the account before taxes are applied, passing on savings of 30-40% to the participant.
What can HSA dollars be used for?
Eligible medical expenses include doctors, hospitals, prescription drugs dental care/ortho, vision care, chiropractic/acupuncture, lab fees, over-the-counter medicines, and more.
HDHP participants don’t automatically qualify for an HSA. To be eligible for an HSA, participants:
If at any point the participant becomes ineligible to contribute to an HSA, they can still continue to use the funds in their account until they run out.
If medical expenses are more than the HSA balance, the employer may offer an HSA Bridge that will enable the participant to access future scheduled HSA deposits before a balance has been built. The expense can also be paid with another payment source and reimbursed to the participant later when funds are available.
Carefully weigh the pros and cons of high deductible health insurance plans to offer your clients the healthcare coverage they need and save money.
To learn more, check out this BRI article and video.
Contact your Claremont team at 800.696.4543 or email@example.com.
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