In 2003, federal legislation provided for tax-free accounts where individuals can contribute funds to be used for medical costs. Eligibility requirements for these accounts include enrollment in a health plan with a deductible of at least $1,000 for an individual or $2,000 for a family. These plans offer low premiums in exchange for higher deductibles. A Kaiser study of 2,000 companies found that 22 percent of employees at companies with at least 200 workers had such a plan in 2009.
Definition
A high deductible health plan (HDHP) is a type of consumer-driven health plan. Insurance companies claim that these plans benefit people who can not afford higher premiums and that people will make more cost-conscious choices when spending their own money. Individual deductibles start at $1,000 and can be as high as $10,000. Many employers offer an HDHP option to employees, and individuals can also apply for this type of plan on their own.
Options
An HDHP can function similarly to a health maintenance organization (HMO) or a preferred provider organization (PPO) in terms of physician networks and overall structure. In either case, the insured may have a choice of different deductible levels. Different plans feature different rules regarding how costs are applied to meet the family deductible, and also differ in the lifetime maximum payment available for an individual or family. Some plans offer a copay option for basic and preventive care obtained before the deductible is offered, but it is not a requirement that they do so. Coinsurance levels can also vary, meaning that the percentage of costs the insured is responsible for paying once the deductible is exhausted varies. Typical coinsurance levels range from nothing to 30 percent.
Advantages
A key feature of the HDHP is the low monthly premium cost relative to traditional plans. According to an Oct. 16, 2009, "The New York Times" article, such plans have premiums that are typically 20 percent below the cost of a comparable plan. An HDHP protects the insured against the high costs of catastrophic illness or injury, and is sometimes referred to as catastrophic insurance. It is beneficial for people who cannot afford traditional plan premiums or who are healthy and do not need routine care.
Tax Benefits
Many HDHPs offer the option of a health savings account (HSA) or health reimbursement account (HRA) the insured can use so that health care costs come from pre-tax funds. The main difference is that an HSA is owned by the insured and funds roll over each year, whereas an HRA belongs to and is funded by the employer. Funds in an HRA may or may not roll over each year and are usually forfeited when an employee leaves the company. Employers can contribute to an HSA, representing an additional benefit.
Disadvantages
The plans may not cover preventive care or prescriptions, and the costs for routine care before the deductible is met can accumulate rapidly. Often people who choose an HDHP find that they avoid seeking medical attention because of the out-of-pocket costs, or that the premium savings do not make up for the high costs of obtaining medical care before they meet the deductible. Investment firm Fidelity found that half of workers surveyed had at least one family member who refrained from seeking medical care because of the treatment costs. Also, the tax breaks are not very beneficial for low-income people.
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