If you’ve started a new job or changed your healthcare benefits recently, you may have been given the option of a High Deductible Health Plan – HDHP, also called Consumer Directed Health Plans (CDHPs). These plans are growing in popularity, and they’re characterized by lower premiums and higher deductibles. If your eyes are already starting to glaze over, don’t worry- we’ll break it down for you!
Firstly, lets revisit the concept of a ‘deductible’:
The ‘deductible’ in your health insurance plan is the amount you owe out of pocket for covered healthcare services before your plan starts to pay. For example, if your deductible is $1,000, your plan won’t pay anything until you’ve personally spent $1,000 in costs for covered healthcare services (subject to the deductible). Once you meet your deductible for the year, your plan will require you to pay ‘coinsurance’ until you reach your ‘out-of-pocket’ maximum. Once this cap is met, your insurer pays 100 percent of covered services.
With an HDHP, you’ll pay a higher deductible (you’re covering more of the initial costs out-of-pocket), but in exchange you’ll be charged a lower monthly premium. An HDHP could save you hundreds if not thousands of dollars annually, but what happens when you do require expensive medical care – for example, an in-patient surgery? You may be surprised that in many such cases an HDHP option is still a better choice.
One of the big advantages of an HDHP is that it is coupled with a Health Savings Account – or HSA. You can put pre-tax dollars in an HSA that can be used for out-of-pocket medical expenses, including but not limited to deductibles. So in effect, an HSA not only helps you pay for medical services but also reduces your tax bill and you keep any unused funds so that they can contribute to next year’s expenses. An HDHP coupled with an HSA can help you take control of your healthcare expenses and save for the future.
Deciding whether to pick an HDHP is an important personal financial decision and should be well thought out. Before you commit, we encourage you to review your finances and decide on a the best approach for you and your family. Here are some important factors to weigh when choosing a health plan:
- What will my future care cost?
- Do I have any long-term chronic diseases or conditions?
- Am I planning on any high cost items in the future – for example major surgery or a pregnancy?
- What do my prescription medications cost? Could I reduce medication costs by switching to generic drugs or using a mail order option?
- Will my medications be covered in a new plan?
- Is it important that my current doctors are ‘in-network’ if I switch plans?
- Could I switch to a lower cost provider?
- Am I accident-prone? How likely is it that I will incur costs for emergency room care?
- Could different life events impact my plan choice (e.g. births, divorce, marriage, etc.)?
Choosing the right healthcare plan can be overwhelming, especially when you have to anticipate potential life-changing scenarios. However, the more informed you are, the better position you’ll be in to make the best decision for you and yours.
- If you don’t anticipate needing much medical attention nor any major life changes, an HDHP might be the plan for you
- Many consumers with high medical costs are also good candidates for an HDHP
- Before you commit, decide on a monthly amount you’ll contribute to your HSA (pre-tax savings account that you’ll use to pay medical expenses if needed)
Obeo Health tools will demystify the health plan selection process. Stay tuned, as we’ll dig even deeper into this topic in future posts. For more information and to set up a demo please contact us today!