What is a high deductible health plan (HDHP)?
A high deductible health plan (HDHP) is a health insurance plan with a high minimum deductible for medical expenses. A deductible is the part of an insurance claim that the insured pays out of his pocket. Once a person has paid this part of a claim, the insurance company will cover the other part, as specified in the contract. An HDHP usually has a higher annual deductible than a typical health plan, and its minimum deductible varies by year. For 2019, it is $ 1,350 for individuals and $ 2,700 for families, and it will increase to $ 1,400 and $ 2,800 in 2020.
Key points to remember
- A high deductible health plan (HDHP) reduces insurance premiums and is the only way to qualify for a tax-advantaged health savings account (HSA).
- HDHP is best for younger, healthier people who do not expect to need medical coverage, except in severe health emergencies.
- HDHP is also good for wealthy individuals and families who can afford to pay the high deductible out of their pocket and want the benefits of HSA.
- HDHP is believed to lower overall health care costs by making people more aware of the cost of medical expenses.
Understanding a high deductible health plan (HDHP)
High deductible health plans are thought to reduce overall health costs by forcing people to be more aware of medical expenses. The higher deductible also reduces insurance premiums, making health coverage more affordable. This benefits healthy people who especially need coverage in the event of a serious health emergency. It can also benefit wealthy families who can afford the deductible because it provides access to a tax-advantaged health savings account (see below).
HDHP coverage comes with a catastrophic annual limit on direct spending on covered services from network providers. (For 2019, for example, the limit is $ 6,750 for an individual and $ 13,500 for a family, increasing to $ 6,900 / $ 13,800 in 2020.) Once you reach this limit, your plan will pay 100% of your expenses for networked care. If you are interested in this route, it is important to understand how HDHP works and how having one will change the way you pay for health care.
Having an HDHP allows you to obtain a health savings account (HSA), which you can contribute to deferred taxes that can be used to pay for qualified medical expenses not covered by the HDHP.
Special Considerations of a High Franchise Health Plan (HDHP)
One of the advantages of an HDHP is a health savings account (HSA), which is only accessible to American taxpayers who are registered with it. HDHP became more common when new health savings account (HSA) legislation was enacted in 2003. Taxpayers contribute funds to an HSA for medical expenses that HDHP does not cover. These funds are not subject to federal income tax at the time of deposit.
An HSA is one of the ways in which an individual can cut costs if he faces high deductibles. As long as withdrawals from an HSA are used to pay for qualified medical expenses that are not covered by the HDHP, the amount withdrawn will not be taxed. Eligible medical expenses include deductibles, dental services, vision care, prescription drugs, co-payments, psychiatric treatment and other qualified medical expenses not covered by a health insurance plan. If you make withdrawals for ineligible expenses, you will have to pay income tax on the amount, and if you are under 65, you will incur an early withdrawal penalty of 20%.
Contributions made to an HSA must not be used or withdrawn during the tax year. All unused contributions can be carried over to the following year. For wealthy families who can afford to self-insure, an HDHP gives them access to tax-efficient HSA savings that they can use in retirement, when the early withdrawal penalty for ineligible expenses does not apply more.