The term high deductible health plan ( HDHP ) relates to a health insurance plan with a significant deductible for medical expenditures. An HDHP usually has a higher annual deductible (usually four figures) than a specialty health plan that charges a lower monthly cost. The plans provide full coverage for normal preventive care, meaning individuals are not credible for nonpayment or coinsurance. The minimum deductible varies every year. For 2021 and 2022, the IRS defines an HDHP as one with a minimum deductible of $1,400 for individuals and $2,800 for families.
What is a Deductible?
A deductible is the portion of an insurance claim that the insured must pay out of pocket before coverage is activated. If a person pays that portion of a claim, the insurance company pays the remaining portion as specified in the contract.
What is a High Deductible Health Insurance (HDHP) plan?
HDHPs are believed to reduce overall health care costs by raising patient awareness of medical expenses. The higher deductible also lowers insurance premiums, resulting in a more affordable monthly cost. Healthy people get full advantage who require coverage for major health emergencies. Wealthy families who can afford to meet the deductible also benefit, as it provides access to a tax-deferred health savings account.
These plans fully cover routine preventive care with no copayments or coinsurance before the deductible kicks in for the following list (which is not exhaustive):
- Blood pressure screening
- Depression screening
- Diet and nutritional advice
- HIV screening
- Vaccinations against diseases such as chickenpox, flu, and measles
HDHP coverage comes with an annual destructive limit on out-of-pocket expenditures for hidden benefits from in-network providers. For example, the plans set minimum deductibles of $1,400 and $2,800 for individuals and families, respectively. The ultimate deductible for 2022 is $7,050 for an individual and $14,100 for a family. This is an increase from the $7,000 and $14,000 limits for 2021.
When you reach this limit, your plan pays 100% of your network maintenance costs. If you’re anxious about taking this route, it’s essential to understand how HDHPs struggle and how your healthcare pay will change if you have one.
One of the benefits of an HDHP is the ability to open a Health Savings Account (HSA), which is a tax-advantaged savings account. HSAs are only available to people who are covered by an HDHP. And you cannot have any other type of health insurance to qualify for one.
Regular contributions to the account are made by the insured person or their employer. These funds are not subject to federal income tax at the time of deposit or withdrawal. The idea is to use them for qualifying medical expenses that HDHPs don’t cover, including:
- Dental Services
- Eye care
- Prescription drugs
- Psychiatric treatments
Other qualifying expenses not covered by health insurance
An HSA can cut costs if you’re faced with high deductibles. As long as withdrawals from an HSA are used to pay qualifying medical expenses not covered by the HDHP, the amount withdrawn will not be taxed.
Unlike a Flexible Spending Account (FSA), contributions made to an HSA do not have to be spent or withdrawn during the tax year in which they were paid. All unused premiums can be rolled over—indefinitely. For wealthy families who can afford to insure themselves, an HDHP provides access to tax-advantaged HSA savings to use in retirement if the prepayment benefit doesn’t apply to them spending no longer applies.
Advantages and Disadvantages of an HDHP
The high costs associated with HDHPs come with certain advantages and disadvantages. We’ve summarized some of the most popular ones below.
What are the advantages of HDHP?
As mentioned above, policyholders with an HDHP end up paying lower monthly premiums. This can save you money knowing you will only be using the plan for preventive care and not for more complicated procedures. Make sure you stay within your network to get the advantages, otherwise you will incur more costs.
Insured Persons may use an HSA in conjunction with an HDHP. Keep in mind that HSAs are tax-deferred accounts that can be used to pay for qualifying medical expenses that your plan may not cover, such as B. Acupuncture and dentist costs. The money you put into your HSA is tax-free and can help lower the cost of your high deductible.
1. You pay lower premiums: According to Towers Watson, three quarters of employers now offer HDHPs – up 53% from a few years ago. Even if employees don’t want such a plan, they may not have a choice. But the bigger question is, why would anyone choose an insurance policy that requires you to pay a higher amount? Well, plans like the HDHP offer lower premiums. This simply means that you can save more of your salary. The HDHP is also good for those who rarely get sick because they don’t even reach their franchise.
2. You can cope with rising healthcare costs: By offering HDHPs, employers hope workers will take more responsibility for their spending. In this case, the patient bears most of the bill. Knowing this, patients may seek out cheaper MRIs, see doctors to determine whether or not they really need a particular test, and only go to the emergency room if there really is an emergency.
What authorizes high-deductible health insurance for an HSA?
You can integrate your HDHP with an HSA, which is a tax-advantaged health insurance policy. To qualify for an HSA, you must be enrolled with an HDHP and have no other type of health insurance.
What are the disadvantages of HDHP?
The main and obvious downside is the high cost associated with these plans. Higher deductibles mean you have to pay more out of your medical and health care needs before the plan pays for you. This can weigh on your pocket, especially if you have unexpected health issues to deal with.
1. Ridiculously high deductibles hit the insurer: The average deductible is at least $1,300 for individual insurance, while for a family it is $2,600 and up. Some reports say someone can pay up to $10,000 in deductibles. Large companies, on the other hand, offer different plan levels. That means there are plans with minimum deductibles as well as plans with higher ones.
2. You benefit more when you are young and healthy: Healthy living has become more and more popular. We have more and more people opting for a healthy diet and daily exercise routine to stay fit. After all, prevention is better than cure, right? The same concept applies to HDHP: if you are young and healthy, you can save more money.
3. You might be tempted to skip essential health care: With HDHP, patients have to pay out of pocket – and at a higher rate – before their insurer pays their share. This is believed to make you look for cheaper alternatives when it comes to health care. However, this is not the case. A study by NBER found that consumers simply skip services like colonoscopies and mammograms altogether. These above services are said to be free under the Affordable Care Act.
It is being disliked by the majority to use the money for our own health care. But if you’re stuck with an HDHP, don’t sacrifice your health. You can find lower prices if you take the time to look around – there are tools that can make comparisons to help you decide where to source services from.
What is the cost of a high-deductible health plan?
To qualify as such, an HDHP must have a minimum deductible of $1,400 for individuals and $2,800 for family insurance. The maximum amount of money policyholders will have to spend in 2022 is $7,050 per person and $14,100 for families. Insured persons are also responsible for monthly premiums, which vary by insurer.
What does PPO stand for?
“PPO” stands for “Preferred Provider Organization”. It is a type of health insurance available to individuals and families. The plan connects healthcare professionals – including doctors and dentists – and medical facilities with a network of providers.
The “preferred” part means that subscribers typically pay lower fees to providers within the network. Also, depending on your plan, a visit to an in-network provider may not require copayments or other out-of-pocket expenses.
Individuals on Medicare also have access to PPOs. If you choose Medicare Advantage (Medicare Part C) coverage, you can choose a PPO plan operated by a private insurer.
Advantages and Disadvantages of PPOs
PPOs are the most popular type of health insurance coverage, ahead of Health Maintenance Organizations (HMOs) and Exclusive Provider Organizations (EPOs). Almost half of all employees are registered with one.
What are the advantages of PPOs?
More flexibility: Unlike HMOs, PPOs do not require you to select a primary care provider (PCP). Additionally, PPOs partially pay for out-of-network care, giving you a wider choice of physicians and specialists.
No referrals required: PCPs are optional in PPOs. This means no doctor is managing your overall care, so you don’t have to convince anyone to give you a referral to other providers.
May Offer More Services: Some PPOs offer participants a broader range of services beyond traditional physical exams and health screenings including chiropractor and acupuncture services. These details vary by plan.
Traveling With You: PPO insurance protects you when you’re away from home because you’re not limited to your network of healthcare providers. You still have coverage when you travel or when you need to see doctors and specialists abroad. In contrast, HMOs usually restrict you to a network in your area.
What are the disadvantages of PPOs?
The Price of Flexibility: PPO premiums are typically higher than other plan types. The Kaiser Family Foundation (KFF) reported that annual PPO plans in 2021 were $1,389 for individual workers and $6,428 for paid families. In comparison, HMO awards were $1,204 for individuals and $5,254 for families.
They’re more likely to have an annual deductible: KFF research also found that 43% of workers who work in HMOs have no deductibles, compared to just 15% of those in PPOs. (For employees whose plans have a universal annual deductible, the averages for HMOs and PPOs are similar: $1,271 for HMOs versus $1,245 for PPOs.)
Other Costs to Consider: While PPO members can see any doctor or specialist, cost-sharing rules vary. Typically, you pay a higher percentage of co-insurance when you see a doctor outside of your network. For example, you can pay 20% of coinsurance for an on-net doctor and 40% for an off-net doctor.
Potentially more paperwork: If you leave your PPO network, you may need to file a claim form with your insurer. If you frequently see vendors off-line, filling out and submitting paperwork can be time-consuming and frustrating.
Responsibility for Coordinating Care: The direct selection of physicians and specialists means that you have the task of coordinating your care. In contrast, HMOs and some other plans make your GP the central person for coordinating and managing your care.
The cost difference between HDHPs and PPOs
Depending on the specific plans you have available, the question of cost could arise in three ways:
- You could save even more with a PPO.
- You could save even more with an HDHP.
- In a few situations, the two could cost you about the same.
To understand how HDHP and PPO plans generally performs, let’s look at some examples.
Say you’re young and healthy, so you decide to go with an HDHP hoping to save on premiums and take advantage of the HSA option. The $150 monthly bonus sounds like a great deal! Just be aware of the $3,000 deductible you have on individual insurance.
Or say you have an ongoing medical problem or plan to make many visits to the doctor’s office over the next year. When you set a PPO price, you realize that your monthly premium is $450. Oops! That’s three times the amount of HDHP! But upon closer inspection, you realize that your deductible is only $900. So you get help from the health plan much earlier in the year than with an HDHP.
So far it looks like an HDHP would be a bit better if you’re relatively healthy, and that a PPO would be a better fit if you see a lot. But even at these prices, the question of which suits you better is still up in the air. That’s because there’s no way to know what’s going to happen in any given year of medical care. The best approach is to compare what is offered in each type of plan and calculate some numbers based on your medical expenses.
HDHP vs PPO: Which one is Right for You?
The shortest answer here is that it depends on your circumstances. If you are looking to get health insurance, you should work with a professional who knows the industry and can teach you everything you need to know to get the best coverage.
If you already have an HDHP and haven’t established your health savings account yet, we know who can assist. Open your HSA account today!