While medical expenses keep escalating nationwide, everyone wants to locate a cheap but good health coverage plan. For many, they are a reality with High Deductible Health Plans (HDHPs). These plans carry the promise of savings with an element of how one needs to manage healthcare costs. But is it for you?

HDHPs can be cost-saving for individuals, and that's why over half of private-sector workers were covered by one in 2023. However, before signing up for an HDHP, it helps to know how a high-deductible health plan works and how to get the most out of it.

What is an HDHP?

An HDHP is a type of health insurance with a larger deductible, meaning that the policyholder must pay more before the insurance company begins to pay for medical expenditures. The plans appeal to those seeking cheaper monthly payments because, as a trade-off, they typically feature lower monthly premiums.

To be an HDHP, a plan must satisfy certain federal requirements, which are revised yearly. For 2024, the Internal Revenue Service (IRS) has defined an HDHP as a plan with:

• A minimum deductible of $1,600 for single coverage or $3,200 for a family policy.
• A maximum out-of-pocket limit of $8,050 for an individual or $16,100 for families, including deductibles, copayments, and coinsurance.

Under the Affordable Care Act (ACA), HDHPs purchased through the Health Insurance Marketplace must provide preventive services—such as vaccinations, annual physicals, and prenatal care—at no cost when using in-network providers, regardless of whether the deductible has been met.

Making an HDHP Work for You

If you want to save premiums, buy a high-deductible health plan, but plan properly to ensure it covers your healthcare. The following are important factors to consider before signing up.

Evaluate Your Health and Medical Costs

Since HDHPs require that you pay the majority of medical expenses yourself before you reach the deductible, they're ideal for healthy individuals with minimal medical needs. If you visit physicians regularly, are always in treatment, or have dependents who continually incur medical expenses, an HDHP may not be sufficient.

Before selecting an HDHP, take into account:

• Your health status and family medical requirements.
• Your capacity to absorb possible high out-of-pocket expenses.
• The possibility of requiring specialist treatment or costly procedures.

Examine Plan Details

Although all HDHPs have high deductibles, other aspects—premiums, covered services, and provider networks—differ. Key considerations are:

• Premium Expenses: The average annual premium on an employer-governed HDHP is $8,217 for single plans and $22,404 for family plans. Premiums are subject to some geographical variation, with lesser-cost options found in some states than others.
• Out-of-Pocket Limits: Ensure you know your plan's maximum out-of-pocket expense.
• Coinsurance Rates: They can be 20% to 40% once the deductible is met.
• Network Providers: Make sure your favored doctors are covered in-network if you like. Also, see if the plan is a PPO, an HMO, a POS, or an EPO because each has differing implications for flexibility and provider availability.

Use a Health Savings Account (HSA)

To help pay for HDHP expenses, consider setting up a Health Savings Account (HSA), which enables you to save pre-tax dollars for medical bills. The advantages of an HSA are:

• Tax-deductible contributions
• Money rolls over each year without expiration
• Tax-free withdrawals for qualified medical expenses
• Employer contributions (if offered)
• The freedom to use money for any reason after age 65 offers a second source of retirement savings.

An HSA is only accessible to those covered under an HSA-qualified HDHP. You can establish an account with your employer or through an HSA provider.

Consider a Group Coverage HRA

If an HSA is not possible, an alternative way of reducing out-of-pocket expenses is through a Group Coverage Health Reimbursement Arrangement (GCHRA). This benefit provided by the employer offers tax-free reimbursement for unpaid medical expenses.

Important benefits of a GCHRA:

• It covers over 200 qualified expenses, including deductibles, copayments, and prescriptions.
• There are no contribution limits, giving employers flexibility to determine the level of reimbursement.
• It offers flexibility for employees to manage their use of funds during the plan year.
• Reimbursements are tax-free, easing financial burdens.

A GCHRA is not portable, like an HSA—funds are tied to the employer in case of leaving the firm or terminating the plan year.

Conclusion

HDHPs are economical for those willing to buy private health insurance, yet you need careful thought beyond mere premium savings. Assessing your health requirements, learning about plan specifics, and using supplemental options such as an HSA or GCHRA can turn an HDHP into a pragmatic and economically viable option.

Suggesting a GCHRA if your employer accepts feedback on benefits may add flexibility and cost savings while maximizing your use of HDHP coverage.