The high deductible health plan, also referred to as HDHP, is a type of affordable health insurance with higher deductibles than traditional insurance but with low premiums. Premiums are the periodical fee you pay to the insurance company for the medical coverage, meaning that you pay a certain amount in installments each month.
Once you reached the defined claim, you can avail of the insurance benefits from the government or the insurance company for health expenditure as specified in the contract. Once you reached your limit, a higher deductible health plan will pay 100% of your in-network care expenditure.
HDHP can be typical of two types:
1. HMOs (health maintenance organization) or
2. PPOs (point of service).
HMOs require you to seek the professional help of only in-network health providers (the doctors or hospitals the insurance company has agreed upon discounts or contract)
PPOs are flexible in terms of in and out professional network help but require you to pay an additional amount for out network health providers.
HDHP was made the only criteria to make you eligible for the government’s tax-advantaged account like a health savings account (HSA) when the law was passed by legislation in 2003. Health Savings Account helps you pay certain medical expenses through federal tax money that is not covered by HDHP, which includes dental services, vision care, prescription drugs, and psychiatric treatments.
How Health Insurance Deductibles Work:
Cost-sharing is when you and the insurance company jointly pay for your medical expenditure. The examples of cost-sharing are deductibles, coinsurance, and copays. HDHP must conform to the customary federal guidelines, and at the beginning of your policy period, deductible resets automatically, and most of them are of a time frame one year.
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People often mistake between premium and deductibles. Premium is the fee you pay to an insurance company over a year, and you can use your coverage or insurance benefits only when the payment is paid in full. This fee is recurring until your plan is active, and the premium increases with the addition of each person, whereas a deductible is only paid when you used the insurance.
There are two types of health insurance deductible plans:
One is a high deductible low premium plan, which is suitable for people who anticipate fewer medical expenses.
Other is a low deductible high premium plan, which is often availed by people with chronic diseases and with generally regularly hospital visits, which helps them cut close to the upfront expenditure.
To qualify for HDHP and HSA the minimum deductible for individual coverage was $1,350 in 2018.
The average health insurance deductible in 2019 was $1,350 for an individual and $2,700 for a family, but out-of-pocket expenses are at $6,650 only for an individual and $13,300 for a family. HDHP schemes for 2020 is that you pay $3,550 through premiums each month for an individual and $7,100 for a family.
Pros and Cons of High Deductible Health Plan
PROS of HDHP:
The high deductible health plan is the most affordable insurance for a large family if sickness does not often occur among family members because the monthly premiums are low and affordable.
Usually, if your employer is providing you insurance 60%, then 40% will come automatically from your paycheck, which may cost you a lot. HDHP helps you save a lot of money, especially if you are self-employed.
HDHP qualifies you for the HSA, which is beneficial in a procedure that insurance company doesn’t pay for.
HDHP covers preventive care ( which includes check-ups, patient counseling, and screenings to prevent illness) before you reach the deductibles and now insurers are able to squeeze some of the chronic diseases under the umbrella as well.
In 2019, male contraception has also been introduced in plans before insurance has reached the deductible.
CONS of HDHP:
Sometimes a low deductible high premium is the only health insurance your employer offers you so. Basically, there is no choice.
The biggest downside of HDHP is until you have completed your round of premiums, in case of a medical emergency, you have to pay all of the medical expenses out of your pocket.
Despite a medical insurance plan, you should be an expert in saving money and have a fair chunk of liquid money for any upfront hospital visits.
HDHP doesn’t pay for non-preventive services until the deductible is reached, which are services provided in order to diagnose, monitor disease, provide relief, and/or improve the state of health.
When is Health Insurance Premiums Tax-Deductible:
It is mandatory to have health insurance according to the Affordable Care Act unless you want to pay the penalty under the Tax Cuts and Jobs Act (TCJA). Still, the tax is 100% deductible on both state and federal income taxes, just like any other ordinary business expenses. Through a pre-tax basis, an employee can contribute to health insurance. That means that the cost of the premium is deducted before the state and federal taxes are calculated and the amount is deducted from the paycheck.