Understanding High Deductible Health Plans and Health Savings Accounts

Health insurance has become a major expense for many households. With the costs of healthcare on the rise, individuals must become educated in insurance options available to them. Healthcare rates have increased consistently for the past several decades. It is now more important than ever to fully understand your healthcare options, Doroshow Insurance can help. 

What do I need to know about high deductible health plans?

High deductible health plans require that all healthcare costs are paid upfront. Often once the required deductible has been met, employees are no longer required to pay for medical expenses out of pocket. 

Pros of HDHP plans

• The premiums are lower than other POS and PPO plans.
• Members can save money if health benefits are infrequently used.
• Monthly bills may actually be reduced if the person is not on many expensive medications.
• Patients enjoy access to a wide range of providers.
• Any expenses paid up front are negotiated, contracted rates agreed to by the provider.

High deductible health plans are common in the marketplace. Companies are actively looking for ways to contain costs, so healthcare plans for employees are often the target for the cost-cutting initiatives. This is why high deductible plans are offered by nearly one-third of employers.

What do I need to know about health savings accounts?

Health savings accounts allow you to make tax-deductible contributions to an account that are later used to manage health care expenses. These accounts, which are available only to people who have a high-deductible health plan, offer a trifecta of tax benefits for people who use them to save money for medical expenses: you put money in pre-tax, the money grows tax-free and is distributed tax-free as long as you use it on qualified medical expenses. If there are any withdrawals made for non-medical expenses, the withdrawal will be taxed. A 20 percent penalty is assessed for these withdrawals as well if you are under 65 years old. The annual contribution amount for 2018 is $3,450 for individuals and $6,900 for families. 

Pros of HSA plans

• Funds can be used after the person retires.
• Individuals and employers can contribute to an HSA. 
• Tax breaks are allowable for contributions.
• Money in the funds do not have to be spent by year’s end.
• Money in the account grows tax-deferred. 

According to research, 30 percent of employers offer health savings accounts. An estimated 20 to 22 million people in the United States are enrolled in an HSA plan. Employers typically pair these plans with high deductible health plans to reduce the burden of out-of-pocket expenses. Employees benefit the most from contributing the maximum amount to the HSA account each year.

Importance of knowing the ins and outs of health plans

Employees should fully understand the basics about their health plans offered by their employer, which includes network providers, premiums, and deductible amounts. Employees must be well-informed about what their tax obligations are when funds from their health savings accounts are used. Understanding the interest, penalties, and parameters for use of these accounts can translate into thousands of dollars in a matter of years when funds are permitted to grow.