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What is a high deductible health plan? The ultimate guide to HDHPs

high deductible health plan HDHP

High deductibles are becoming more and more common. The average employee deductible increased 67% between 2010 and 2015, and more than half of all Americans with employer-based coverage now shoulder a deductible that’s $1,000 or more.

Despite the prevalence of high deductible health plans, there’s still a lot of confusion about what exactly they are. What qualifies as a high deductible? How is a high deductible health plan different from a traditional health insurance plan? And how could having a plan with a high deductible affect you?

Below is a definitive guide to everything you need to know about high deductible health plans—from federal guidelines to benefits and drawbacks. Plus, we’ll show you the best ways to manage your healthcare costs and save money, even with a deductible that’s on the rise.

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What makes a high deductible health plan

In general, a high deductible health plan (HDHP) has a higher deductible and lower premium than a traditional health insurance plan—but this can mean practically anything. Below is a deep dive into all the different features that define a HDHP.

High deductible

A deductible is the amount of money you must pay in a year for healthcare services before your health insurance company pays a single dollar (except when it comes to preventive care—more on that below). For traditional health insurance plans, deductibles typically range from a few hundred dollars to about $1,000. But for HDHPs, your deductible will likely be much higher.

Each year, the federal government determines a minimum threshold that must be met by your deductible to be considered a HDHP. There’s a different threshold for individual plans and family plans. Below are the thresholds for this year and next year.

Year Minimum deductible (individual) Minimum deductible (family)
2017 $1,300 $2,600
2018 $1,350 $2,700

If you have individual coverage (meaning your health insurance is just for you and no other family members) and your deductible is $1,300 or more, your plan qualifies as a HDHP this year. If you have family coverage, your deductible must be at least $2,600 to qualify as a HDHP.

Lower premium

A premium is the amount of money you must pay each month to maintain coverage. If you have health insurance through your employer, your premium is likely taken out of your paycheck each month or each pay period.

Because HDHPs come with a rather hefty deductible—meaning you’re liable for more costs up-front—they also tend to come with lower premiums. The cost of your premium could be more than 30% lower with a HDHP, according to Mercer, which found that employees contribute $84 per month on average for individual coverage under a HDHP, compared to $132 for PPO coverage (a type of plan that usually has lower deductibles).

Co-pay and co-insurance

As with most health insurance plans, a HDHP usually requires a co-pay and/or co-insurance that you must pay even after you’ve met your deductible. A co-pay is usually a fixed amount, whereas a co-insurance is a percentage of the total cost. Co-pays and co-insurance rates vary a fair amount, depending on your insurer and the structure of your specific plan.

Out-of-pocket maximum

Many insurance plans have what’s called an out-of-pocket maximum, which is a limit on the total amount of money you have to pay for covered healthcare services in a year before your insurer pays 100% of your costs.

HDHPs must not exceed a maximum out-of-pocket limit set by the federal government. This is to make sure that patients’ cost liability is limited. Below are the maximum out-of-pocket limits for individual and family plans for this year and next year.

Year Out-of-pocket max (individual) Out-of-pocket max (family)
2017 $6,550 $13,100
2018 $6,650 $13,300

Your out-of-pocket maximum doesn’t take into account the money you pay towards premiums or healthcare services that aren’t covered by your plan (aka out-of-network care). It does take into account the money that goes toward your deductible, as well as any co-pay and co-insurance costs after that.

Integrated deductibles

Some HDHPs have what’s called an integrated deductible. If you have an integrated deductible, all of your out-of-pocket expenses for various healthcare policies can count toward the same deductible. This is often the case if you have a main medical insurance plan with a high deductible and a separate prescription drug policy. This makes it easier to meet just one deductible, rather than two.

Benefits and drawbacks of a high deductible health plan

As with any health insurance plan, a HDHP has both pros and cons. Below is a brief overview of the benefits and drawbacks that people with HDHPs most often experience.

Benefits of a HDHP

  • Lower premiums. Your cost of coverage could be substantially lower with a HDHP. Mercer found that employees, on average, save more than 30% on premiums, paying $84 per month on average for individual coverage (compared to $132 for a PPO) and $321 per month on average for family coverage (compared to $467 for a PPO).

  • Wider networks. Unlike with a HMO (a type of plan that generally has lower deductibles and a very limited network of doctors and hospitals you can go to), HDHPs generally offer a lot of choice when it comes to picking a doctor or hospital. This can be a huge plus for people who want flexibility when choosing care.

  • Ability to open a health savings account (HSA). You can only use a HSA if you have a HDHP. This allows you to pay for healthcare expenses with pre-tax dollars, which can add up to huge cost savings. We’ll go into more detail on HSAs below.

Drawbacks of a HDHP

  • Possibility of higher out-of-pocket costs. With a HDHP, you’re responsible for paying a relatively large amount of money before your insurance will pay a single dollar. If you utilize healthcare services frequently, this means you could end up with higher out-of-pocket costs than if you had a traditional health insurance plan.

  • Financial incentive to avoid care. Because you’re responsible for 100% of your healthcare costs until you meet your deductible, you may feel pressure to forgo or delay healthcare services with a HDHP. Research has shown that many people with HDHPs do postpone care.

How to know if you have a high deductible health plan

Not all health insurance plans with seemingly high deductibles are considered HDHPs—even a plan with a $1,000 deductible doesn’t qualify. If you’re not sure whether you have a HDHP, here are some tips to find out.

Look at your Summary of Benefits and Coverage (SBC)

A SBC is a document that explains exactly what your health insurance plan covers and outlines the payment structure—including what your deductible, co-pay, co-insurance, and out-of-pocket maximum are. You can find your SBC by logging into your health insurance account.

Ask your employer

If you get health insurance through work, your employer will have more information about the details of your plan, plus other plans that you can choose from. Often, employers offer a choice between a HDHP and a PPO or HMO. Your benefits manager can direct you to information on whichever type of plan you choose.

Call your insurance company

If you’re still not sure whether your health insurance plan is a HDHP, you can call your insurance company directly and ask. You can usually find their phone number on the back of your health insurance ID card.

How HSAs factor in

If you have a HDHP, you’re eligible to open a Health Savings Account, commonly known as a HSA. A HSA is a tax-exempt savings account that can be used to pay for healthcare expenses, and it’s only available to people who have a HDHP.

How a HSA works

A HSA allows you and/or your employer to make pre-tax contributions to a savings account that can then be used to pay for healthcare costs. If you have a HDHP through your employer, they will likely help you set up a HSA and choose how much pre-tax income to contribute each pay period. They may also contribute additional money to your HSA. You can then use this money to pay for a wide range of healthcare-related services.

HSAs are the only investment accounts that are triple tax advantaged. This means: (1) your contributions are tax-deductible, (2) any interest earned is tax-free, and (3) you don’t pay tax on any withdrawals you make for qualified medical expenses (more on those below).

What you can use a HSA for

You can use the money in your HSA for anything that’s a “qualified medical expense,” which includes:

  • Doctor and laboratory fees
  • Vision care, including eyeglasses and contact lenses
  • Prescription drugs
  • Surgery, therapy, and counseling
  • Vaccines and other preventive care

These are only a few of the things that you can use your HSA to pay for. You can see a more complete list of HSA eligible expenses here.

You can use your HSA to cover qualified medical expenses for yourself as well as any tax dependents (like children) or your spouse.

Whether you qualify

If you have a HDHP (a deductible that’s at least $1,300 for an individual or $2,600 for a family), then you qualify for a HSA. You can open a HSA directly with a financial institution or through your employer.

If you’re married, you might need to coordinate with your spouse to make sure you don’t violate any regulations regarding HSAs. Married couples can’t have a joint HSA, even if they’re covered under the same HDHP. You and your spouse can open separate HSAs, or you can use one spouse’s HSA to cover medical expenses for the whole family, which is allowed.

Yearly limits on your HSA

The federal government sets limits on how much money you and your employer can contribute to a HSA each year. Below are the individual and family limits for this year and next year.

Year HSA contribution limit (individual) HSA contribution limit (family)
2017 $3,400 $6,750
2018 $3,450 $6,900

This is a limit on how much money you can contribute in a year—but the funds in your account automatically roll over each year, and there’s no time limit on using your funds.

Investing your HSA

You can also invest the money that’s in your HSA, allowing it to grow over the years and collect tax-free gains that can be used for qualified medical expenses. Many people choose to invest their HSA funds, but you don’t have to. You can read more about investing your HSA here.

Possible employer contribution

In addition to any pre-tax income you choose to contribute to your HSA, your employer might also offer a monthly contribution to help offset your healthcare costs. If you’re not sure whether this is included in your benefits, make sure to ask your benefits or HR manager.

How to make the best of a high deductible health plan

With any insurance plan, it’s important to mindful of healthcare costs. But if you have a HDHP, avoiding costly pitfalls is essential, since your wallet is ultimately on the line. Below are three actionable tips to save money and still get the high quality healthcare care you need.

Take advantage of free preventive healthcare

Under the Affordable Care Act, there are certain preventive healthcare services that must be covered without cost-sharing. This means your insurance company is required to pick up 100% of the cost for these services, so they’re free for you to utilize. Some of the most common covered preventive services include:

  • An annual check-up with your primary care doctor
  • Screenings for blood pressure, cholesterol, and STIs
  • Screenings for certain cancers
  • Various vaccines, including all those recommended for children

You can see a full list of 100% covered preventive services here.

Set aside the full amount of your deductible, if you can

If you have the financial means to do so, setting aside the full cost of your deductible means you could comfortably cover any healthcare expenses that arise. If you can, you could even set aside the full cost of your out-of-pocket maximum—but this requires a lot of disposable income.

Even if you can’t set aside that much money ahead of time, try to save as much as possible. That way, you’ll have some savings to fall back on in case of a healthcare emergency.

Shop around for low cost, high quality care

If you have a HDHP and need to see a specialist or have a big medical procedure, you could end up paying the full cost out-of-pocket. Healthcare costs vary a lot by hospital and doctor, so it’s important to shop around and look for the highest quality, lowest cost care in your area.

With Amino, you can see cost and quality measures side by side. Try searching for a procedure (like “ACL surgery”) or condition (like “diabetes”) below to see how it works.

You can also use Amino to estimate your out-of-pocket cost. Just click on a doctor and select “calculate what you’ll pay” to see an out-of-pocket cost estimate specific to your insurance plan.

Are you an employer or benefits manager?

There’s no doubt that HDHPs are gaining popularity among employers—but introducing a HDHP during open enrollment isn’t easy. Your employees might be wary about the switch, and without any preparation or guidance, your company’s long-term healthcare costs could actually increase.

In the next few weeks we'll be releasing an actionable resource guide to make the transition as smooth as possible, so you can manage rising healthcare costs and make sure your employees stay happy and healthy. Stay tuned!