Understanding High Deductible Health Plans

High deductible health plans (HDHP) are health insurance plans that have a high deductible (as defined by the IRS) and lower premium. They are accessed by individuals and employees participating in an employer-sponsored group plan as a way to lower health insurance costs. The minimum deductible for a family plan to qualify as a HDHP is twice that the minimum deductible for an individual plan. HDHPs also set a maximum on the out-of-pocket expense for individual and family plans.

Health Saving Account

Participation in a HDHP allows an individual to establish a Health Savings Account (HSA). An HSA is a type of medical savings account that allows a plan participant to put money aside on a tax-advantaged basis. The money, which is held in a qualified account established by a financial institution or insurance company, is used for unreimbursed medical expenses. Unreimbursed medical expenses include items such as deductibles, co-pays and prescription costs not covered by insurance.

HSA versus Flexible Spending Accounts

Having an HDHP may make sense for those individuals who are willing to take on a higher deductible and have the ability to contribute to an HSA. An HSA differs from a flexible spending account (FSA) in that the money contributed to the HSA does not have to be used by year’s end. Any amount not used to pay for an unreimbursed medical expense is rolled over in the account for future use.

 

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