What are High Deductible Health Insurance Plans?

Health Insurance Online | March 8, 2013

HDHP was Created to Deal with the Rising Health Care Costs By Reducing the Amount of Premiums Paid.

You may have already heard of high deductible health plans (or HDHPs), especially if your health plan is employer-provided. With the enactment of the Patient Protection and Affordable Care Act, employers have been trying to deal with rising health care costs by encouraging their employees to opt for an HDHP in order to reduce the amount of premiums paid for health plans.

As the name suggests, a high deductible health insurance plan comes with a high deductible. This is the component of the insurance contract that must be satisfied first before the benefits start to apply. This portion is paid by the insured on top of co-insurance and co-pay, and all the other out-of-pocket expenses built into the policy. The deductible is considered high starting at $1,200, and it can go to as high as $10,000. With high deductible health plans, companies can save on premium costs by as much as 50 percent.

HDHP is designed to encourage consumers to become more involved in the decision-making process when it comes to seeking medical services precisely because they have a bigger financial stake on the cost of these medical services. In a sense, it encourages consumers to take better care of their health knowing that they would have to shell out a higher amount of money in the event that they require medical services. The prudence practiced by the consumer will translate to a lower health care cost for everyone in general. To illustrate, a consumer may opt to go to a medical clinic instead of the emergency room where they may be charged double. In other words, the consumer will be more inclined to choosing the more affordable option when obtaining medical care.

On the downside, HDHPs may push the consumer into avoiding medical care altogether which may not be a good thing if they do have a serious medical condition requiring attention. A 2011 study published by the RAND Corporation suggested that while HDHP did bring down health care costs for the plan administrators, there was also a significant reduction in availing preventive care by consumers with a HDHP. It was also found that HDHP holders are reducing their spending on medical care to their own detriment.

There are a number of ways by which employers reach out and assist their employees who are on an HDHP. One way to provide assistance is to absorb some of their employees’ out-of-pocket expenses as the deductible remains unmet. Employers also offer Health Savings Accounts or Flexible Spending Accounts where employees may be able to save funds on an account that can be used to pay for medical and other expenses tax-free. To make it easier for employees to maintain the account, the savings that go into it are automatically deducted from their salaries. Some employers offer HDHPs that provide preventive care that is not subject to the deductible.

In a business enterprise, the younger and healthier employees would benefit from HDHPs, especially if they avail of the health savings account offered by their employee. This could mean tax reductions plus a ready fund that they can tap into when paying their out-of-pocket expenses. It may not be a great idea for employees with pre-existing conditions or those who use their health plan often as the cost of the deductible could impact them financially. Older employees usually have growing families that means higher expenses. If you are in the latter group and being offered an HDHP by your employer, be sure to check if they also offer a health savings account to be able to offset some of their medical expenses and to bring down their taxes as well.

HDHPs come with their own set of advantages and disadvantages. Many people use it to realize significant savings in tax payments. Many are also in agreement with their employers that having a lower premium is indeed better than having a low policy deductible especially if they are not really using their health plan all that frequently. These plans will also encourage consumers to make more intelligent health choices and take good care of their health. It may be a good thing to read about HDHP to see whether it is a good fit for you. There are a number of online resources offering information on this plan.

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