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- High Deductible Health Plans have higher deductibles and lower premiums than other plans
- Customers assume responsibility for expenses up to the deductible amount
- High Deductible Health Plans work with Marketplace costs reduction and Health Savings Accounts
- The rules define HDHP by the expense limit, deductible minimum, and type of plan
The IRS defines High Deductible Health Plans (HDHP) for 2016 as those with an individual deductible of $1,300 or more and $2,600 for a family. The HDHP is a prerequisite for a Health Savings Account.
The HDHP is a good match for people that do not need a lot of medical services, which favor savings for investment and future income, and who wish to reduce taxes. Comparison shopping is a great way to assess high deductible health plans.
These plans come in various types and management forms. Comparison shopping can find the right plan for medical care needs and preferences.
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The Health Savings Account
The Internal Revenue Code establishes rules for Health Savings Accounts. The Obamacare Marketplace plans indicate which plans can take an HSA. The savings contributions and earnings provide funds needed for medical expenses.
Unused funds roll over to the next annual cycle when once again the individual or family can contribute up to the maximum. The uses are restricted to medical and health, but the earnings are not limited.
Getting an HDHP and Savings
The High Deductible Health Plan works with a Health Savings Account and a Health Reimbursement Arrangement. The government limits the contributions to the HSA; it sets a rule for each calendar year stating the maximum amounts.
For the calendar year 2016, the maximum for an individual with a single HSA plan was $3,350.00.
If over age 55, then the maximum contribution was $4,350. Those insured under a family plan is $6,750, and the family limit is $7,750 if the HSA holder is over 55.
You also cannot contribute more than $7,750 ($6,750+$1,000) into one HSA for 2016.
Low Premiums Appeal to Cost-Conscious Consumers
High deductible health plans have difficult deductibles to pass and gain insurance coverage of benefits. Low premiums are another feature of HDHPs that appeal to everyone. They are among the lowest in the Marketplace.
Qualified health plans provide wellness visits and prevention benefits. Many of these have no added charges for the policyholders.
The Health Savings Account
The HSA is a tax-advantaged savings account. The funds go in pre-tax. The amount of the annual deposit up to the limit reduces the taxable income. The saving on the untaxed deposit amount is an immediate benefit.
The funds in the account and the interest and profits they produce are usable for medical expenses. The owners can use the deposits by declaring it as income and paying the penalty. After age 65, the fund’s rollover into retirement funds.
Long-term Benefits of HSA
The funds in the HSA are tax-free. The interest and income earned on the HSA deposits and other funds are tax-free. The primary long-term benefit is a tax-advantaged savings and tax-free earnings.
The secondary benefit is the reduction in taxes. Each year the amount of the contribution up to the limit is not taxed as income in the year that one earned it. This tax deferral is an advantage since the funds are in the account, earning interest, and usable for other investment income.
Finally, over a period of years, one can successfully pay medical costs with untaxed dollars.
- Tax free deposit
- Tax free earnings on funds in account
- Reduction of taxable income, lower tax bill
- Use tax free income to pay medical expenses
The HDHP Promotes Self-Reliance
The HDHP is ideal for young individuals or families that do not need a heavy amount of medical services. They can use the savings feature to build a cash reserve against medical expense needs. The IRS rules limit the amount of personal deposits per year.
Should they need more services, it is likely to be due to a catastrophic event or major illness. Then the insurance company will pay after the policyholders pass the deductible amount.
In the event of a large expense, the policyholder can pay the deductible with tax-free income and owe fewer taxes at the end of the year.
Risk and Reward
Many employers offer HDHP to employees, and they are popular selections on the Obamacare Marketplace. The appeal begins with the low premiums. They are among the lowest in the silver group and compare to bronze plans.
The rewards are tax savings and increased financial security. The list describes the managed health care forms using the HDHP and the HSA.
- HMO is the health maintenance organization, and it uses a primary care physician to oversee patient care. The primary care physician must issue referrals for network resources. The HMO does not use outside resources.
- PPO is the preferred provider organization. This form of managed care is more flexible than the HMO. There is no primary care physician and no need for referrals. Users can use network resources and go outside of the network too. The outside network charges get a much lower level of insurance payment than do network resources.
- EPO is the exclusive provider organization. This type of managed care uses a well-defined network of doctors, hospitals, and specialists. Users have access to all network resources with no need for a primary care physician or referrals. The EPO does not use outside resources. Users may not get any insurance coverage when choosing outside of the EPO network.
- PFFS is the private-fixed-fee-for-services organization. This type of managed care organization can stand alone and a network defined by private and service agreements with doctors, hospitals, and specialists. This form can also combine with other organizations to provide local or regional area coverage. For example, the office of personnel management used a fixed fee origination to combine with health insurance plans in New York City area for federal employees. This combination created immediate coverage for a group of federal employees.
- HMOPOS is the point-of sale-option for the health maintenance organization. The HMO uses a primary care physician to provide treatment and make referrals to network specialists. The POS option permits referrals to outside specialists with insurance coverage.
The Health Plan Network
The network is the collection of medical resources gathered under a health plan. This grouping usually includes doctors, specialists, hospitals, laboratories and skilled care facilities.
An important distinction between network resources and outside specialist. The money spent on outside network resources does not count towards satisfying the deductible or the out of pocket limit.
Types of Spending for HDHP
While it is true that a short stay in a hospital for minor surgery can cost many thousands, for most consumers, there is no such event in a typical yearly cycle. Most consumers use medical services on an occasional basis bearing in mind the costs of each use. The below-itemized descriptions cover the basic costs in health insurance.
- Copay is a small portion of the price of a benefit or medical service.
- Coinsurance is an agreed percentage of the cost of a benefit or service This represents the customer’s share of the insurance benefits paid.
- Deductible is the amount a policy calls for before the insurance company must begin to pay its part of the costs sharing for benefits or services.
- Out-of-pocket expenses are any expense that the consumer must pay. The consumer wishes to apply them towards the deductible. Premiums are not deductible expenses except when unemployed individuals use Cobra benefits. Where insurers charge copays and coinsurance before the deductible threshold, then these charges count towards the deductible and out-of-pocket limit.
- Out-of-pocket limit is the overall amount that consumers may pay before the insurance company must pay 100 percent of the medically necessary, covered benefit or service.
- Deductibles limit is the maximum amount of consumer payment for deductible expenses allowed for qualified health insurance plans. It applies to in-network resources and payments.
HDHP Shifting the Burden to Consumers
Copays, coinsurance, deductibles, and out-of-pocket limits are important concepts for High Deductible Health Plans. Insurers have changed their role and moved more things to the customer’s side of the bargain. Once, insurers only charged copays after the consumer passed the deductible.
Similarly, there was no coinsurance until the deductible passed and it applied for so long as the out-of-pocket limit had not been reached. In today’s HDHP, insurers sometimes apply copays from the beginning of the contract and coinsurance for particular services.
The Impact of HDHP
Impact of HDHP on an individual or family can be profound. It is like having insurance and not having it at all until the deductible is paid. The deductible is set so high that it is not easily reached. The out-of-pocket limit is higher than similar policies. The out-of-pocket limit is the point at which all essential medically necessary benefits get paid in full by the insurance.
The use of a Health Savings Account or Health Reimbursement Account seems necessary to balance the risks. Comparison shopping can help find the best value in health insurance plans. Consumers can focus on the features that matter most.
If you aren’t sure which health insurance option is right for you, let us help. Enter your zip code on our site and answer a few questions; we’ll send you personalized quotes that fit your needs and budget.
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