All about HDHPs and HSAs

High Deductible Health Plans (HDHPs) are being offered more and more frequently alongside traditional health insurance plans. If you’re considering an HDHP, you may have questions.

What is an HDHP and how does it work?

HDHPs are health insurance plans that typically offer lower premiums but have a higher deductible than traditional health plans like Health Maintenance Organizations (HMOs) or Preferred Provider Organizations (PPOs).

Here’s how you pay for medical expenses with an HDHP:

  • Until you meet your deductible, you will typically pay 100% of your medical expenses (e.g., appointments, tests, prescriptions) with the possible exception of some preventive care services, like an annual physical. 
  • Once your deductible is met, you may still pay for a portion of your medical costs with coinsurance payments (i.e., paying a percentage of the cost) or copayments (i.e., paying a fixed dollar amount) up to an annual out-of-pocket maximum.
  • Once your out-of-pocket maximum is met, any covered medical care you may require is covered at 100%, meaning you pay nothing.

What is a Health Savings Account (HSA)? How is it related to an HDHP?

An HSA is a medical savings account to help you pay for out-of-pocket medical expenses and is available only if you enroll in an HDHP (with some exclusions). You and your employer may contribute funds to this account up to a yearly maximum—$3,350 if you elected self-only coverage and $6,650 if you elected family coverage (for year 2015). Those over 55 years old can contribute $1,000 above the amount corresponding to the number of individuals on their plan.

You can use these funds to:

  • help you reach your deductible for the current year,
  • pay for any qualifying medical expense on a tax-free basis, or
  • help save for medical expenses in future years, since the funds roll over from year to year.

How do I evaluate if an HDHP may be good for me?

An HDHP may not be for everyone. If you are considering switching to an HDHP with an HSA, think about how an HDHP may affect you:

  • You may pay lower monthly premiums but could have higher out-of-pocket expenses until you reach your deductible. Consider whether you can cover your medical expenses with savings until you have built up your HSA, as this process may take time.   
  • You own your HSA, which means you keep the contributions even if you change jobs or go back to a traditional health insurance plan. Keep in mind that if you switch back, you can no longer contribute to your HSA.
  • An HSA can help you accumulate savings not only for medical expenses, but also retirement. Your HSA funds can earn interest if invested, and you can use this money to pay for qualified health care costs on a tax-free basis now and in the future. At 65, you may take out the funds for any reason and only pay income taxes.
  • The experience of going to the doctor will be different, as you will have to pay the full cost of the visit and services provided—until you meet your deductible—rather than paying a small copay. And, you will have to manage some additional paperwork as you will receive bills from your doctor.

HDHPs are here to stay—take the time to see if this type of plan is right for you.

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