Should I Sign Up for a High Deductible Health Plan?

A high deductible health plan, or an HDHP, is one of the newer types of health insurance that allows savings for some consumers that plans with lower deductibles do not allow. A high deductible health plan requires a deductible of over a thousand dollars. The minimum deductible has been going up every one to two years, so check with your insurance provider to find out what the current minimum amount is. The appeal of high deductible health plan coverage is that premiums are lower because an insured person is self funding a much larger portion of his health care expenses.

Federal tax law allows people enrolled in a high deductible health plan to use a tax advantaged health savings account, also called an HSA. A consumer with health savings account coverage is allowed to deposit up to his deductible amount each year using pre tax dollars. This means that an employee covered by this plan would have an amount withheld from each paycheck and deposited into a health savings account. The amount of an employee’s earnings that are subject to income tax withholding would not include the amount deposited into the health savings account.

High deductible health plans sound simple enough, but anyone considering a high deductible health plan needs to do his homework before signing up for this kind of health plan. Calculate the amount saved by paying lower premiums with an HDHP as compared to the higher premiums of a health plan with a low deductible. Figure out the amount of tax savings from making pre tax deposits into a health savings account. Calculate the expected medical expenses that would be self funded due to the higher deductible instead of being paid by a normal health plan with a lower deductible. Then see if you save money by having a high deductible health plan.

Some people will save with a high deductible health plan because they have enough expected medical expenses to make it worthwhile to set aside pre tax dollars and only use these dollars for medical expenses. Some people will find out that they do not plan to incur enough medical costs to make a high deductible health plan worthwhile.