What is a HDHP?
High Deductible Health Plans (HDHP’s) are a subset of health insurance plans. All HDHP’s are insurance plans, but not all insurance plans are HDHP’s. A HDHP may take the form of a PPO, HMO, or POS. Because they are a subset of health insurance plans, they have similar characteristics to what you expect from insurance.
The main benefits of HDHP’s are:
1) Lower monthly premiums
2) Insured against serious medical condition
3) Maintain more control and flexibility for how your dollars are spent
4) Eligible for an Health Savings Account (HSA) which builds savings with options for investment.
Compared to other plans, HDHP’s generally have a higher deductible and, in turn, lower monthly premiums. By shifting money away from premiums, they represent a low cost way of obtaining health insurance. Instead of paying high premiums each month, the insured pays a greater proportion of services that are actually used. As such, HDHP’s can result in lower cost of insurance compared to other plans. The plans provide full insurance in case of catastrophe while allowing more control and flexibility for the insured. Additionally, some of these plans qualify for Health Savings Accounts (HSA’s), which have tax savings and investment benefits.
What qualifies for an HDHP plan?
Your health insurance plan must fit into the below criteria in order to be considered an HDHP. The federal government defines these limits and has established the following for 2013:
||Maximum Out of Pocket
|Self + Family||$2,500||$12,500|
If your health plan falls within these parameters, you have an HDHP and are eligible to open an HSA (source: OPM.gov).
Each year, the government adjusts these numbers for inflation (up 4% from 2012), so next year these numbers will change. However, this provides a ballpark estimate for what constitutes an HDHP.
The Advantage over Traditional Health Plan’s
As in all plans with deductibles, the insured pays for almost all healthcare costs up until they reach their deductible. While this deductible amount is higher with a HDHP, it is offset by lower monthly premiums. The advantage lies in the probability of these two concepts: reaching your deductible in a given period is not guaranteed, while monthly premium payments are. Some people may not need medical care in a given year. This keeps more money in your pocket (or HSA) and allows you to spend it when you need it, instead of on higher premiums that may not be needed.