High deductible health plan basics
As the name suggests, a high deductible health plan carries a higher deductible, which must be met before your plan benefits kick in for anything beyond in-network preventive care services. As of 2018, a high deductible plan is any plan that has a deductible of $1,350 or more Opens in new window for individual coverage and $2,700 or more for family coverage.
High deductible plans typically have higher out-of-pocket maximum limits, but once you reach that limit each year (including what you pay for your deductible, co-payments, and coinsurance), the insurance pays 100% of the allowable amount for the rest of the calendar year. For 2018, the yearly out-of-pocket total can't exceed $6,650 for individual plans and $13,300 for family plans, excluding out-of-network services.
While you'll pay more for your deductible with one of these plans, you do get the benefit of a lower premium. That's a plus if you stay healthy and never need to meet your deductible or the maximum out-of-pocket limit.
The other big advantage of high deductible insurance is that qualified plans offer a Health Savings Account to help manage health care costs.
What's a Health Savings Account?
A Health Savings Account or HSA is a tax-advantaged account you can use to save for qualified medical expenses, including:
- Weight-loss programs
- Eye exams and eyeglasses
- Dental treatments
- Hearing aids
- Nursing homes and long-term care
HSAs come with some great tax incentives to encourage you to save. Contributions are tax-deductible, and they grow tax-free. Withdrawals are also tax-free when they're used for eligible medical expenses.
Unlike Flexible Spending Accounts, HSAs aren't "use it or lose it." You can leave the money in your account until you need it for eligible medical expenses. Beginning at age 65, you can withdraw money from an HSA for any reason with no tax penalty. You'll just pay ordinary income tax on the withdrawal, making it a potential source of backup income in retirement if you stay in good health.
There's one thing you need to know about HSAs, however. Not every high deductible plan offers them so if you're in doubt, check with your plan administrator to see if it's an option.