High Deductible Health Plans and Your Budget
Over the past few years, high deductible health plans (HDHPs) have been offered by employers at an increasing rate. You may have even signed up for one yourself, attracted by the low monthly premium. But no matter whether you have been signed up for a high deductible plan for years or you are just considering one, it’s important to understand the ins and outs of this healthcare coverage option.
How does a high deductible plan work?
A deductible is the amount you have to pay out of pocket for healthcare expenses before your insurance provider starts to help pay for the cost. As of 2014, to be considered an HDHP, a plan needed to have a deductible of at least $1,250 for an individual and $2,500 for a family. As mentioned above, the trade-off for potentially paying more out of pocket for your healthcare is a lower monthly insurance payment. It makes sense to pair an HDHP with a health savings account (HAS) to avoid scrambling to pay a higher medical expense should the need arise.
What’s a health savings account?
A health savings account is a tax-advantaged savings account used in conjunction with a high deductible health plan to help keep the impact of out-of-pocket medical costs from sinking your financial ship. As the name implies, an HAS serves as security against a major medical expense down the road. In some cases, your employer may make regular or periodic contributions to you HSA. Balances roll over from year-to-year, with maximum yearly contributions for 2014 set at $3,300 for you and $6,550 for your family.
Is a high deductible plan for you?
Depending on your employer, an HDHP may be your only choice. However, if you have options, a high deductible plan can make sense for you if you are healthy and can reasonably expect to have small healthcare expenses during the coverage period. While there is never a guarantee that a healthy person won’t need serious medical attention in the coming months, the odds are on your side if you fall in this category. If you have a chronic illness or know you will need substantial medical attention in the next year, an HDHP might not be your best option.
How much should you allot in your budget each month for your HSA contribution?
A strong budget is always going to serve as a motor churning you toward your goals, and good health maintenance is always a solid goal. It’s important to remember that contributions to your HSA roll over from year-to-year, can grow as an investment, and stay with you even if you leave your company. So while you may not need the money for healthcare now, accumulating a nice stockpile of money in an HSA can be a huge boon at a future point should you do need it. Even if you never need it for medical expenses (and may you be so lucky!), you can also use an HSA as a retirement account since withdrawals after 65 can be made with no penalty.
If you already have a rough idea how much you are currently spending on healthcare per year and simply want to accumulate at least that, your calculations can be fairly simple. But if you’re not currently experiencing significant medical expenses, a good saving motivator is to consider the worst-case scenario: medical attention that costs more than your deductible. For example, if your deductible is $1,500, think about how you would handle a situation in which you needed care that exceeded that amount. Obviously, it would be in your best interest to have that $1,500 in an HSA ahead of time. So your next step is to figure out how quickly can you get to that number. Can you contribute $125 per month and make it in a year? Or maybe put $63 per month and make it in two years. There is no bad contribution, but being aggressive with your contributions could really make a huge difference later.
Once you get the amount of your deductible saved, a good next target is to save up to the maximum level of the copays and coinsurance you would need to pay after your deductible is met. See the details of your plan to ascertain these figures.
Comparison shopping for healthcare
High deductible plans are often referred to as “consumer-directed” plans and that’s no accident. They place the responsibility on you for finding the best combination of reasonable price and quality care for your medical attention. There are several websites that can help in this effort, including:
It will take some effort, but finding the best deal for your care can make a huge difference in the amount you pay for healthcare.
Used together, a high deductible health plan and a health savings account can give you the ability to create healthcare coverage that works for your budget and your future.