This weekly Q&A addresses questions from real patients about health care costs. Have your own question? Get expert answers here.
I'm young and luckily relatively healthy. I use the doctor an average of once per year for my well-woman visit and possibly again if I get sick. I've been told a high deductible health plan (HDHP) is a good choice for my situation and that it might save me some money. Can you explain this to me?
High deductible health insurance plans are not right for everyone. However, while many people are initially turned off by HDHPs, they can be a reasonable choice for many and can be particularly valuable if you know how to use them effectively.
For a healthy young woman with few anticipated medical needs, an HDHP is a great option. It will cover you in an emergency and keep your overall costs low throughout the year. Let's look at why.
What is an HDHP?
A high deductible health plan has a deductible that meets a threshold set by the IRS. For 2015, an individual plan must have a deductible of at least $1,300 to qualify. For families, the deductible must be at least $2,600. These limits are updated annually.
Generally, these plans have lower premiums -- the amount taken out of your paycheck to pay for your coverage -- so they're typically cheaper overall for people with limited medical expenses.
Your deductible is the amount of money you have to pay for medical costs before your health insurance starts picking up a greater portion of the tab. So, for instance, if you're in an HDHP with a $5,000 deductible, you'll have to cover $5,000 in medical costs out of your own pocket before your insurance takes over.
Don't panic. Deductibles don't apply to everything.
I know, you're thinking $5,000 is a lot of money. But from the sound of it, you don't go to the doctor often and your single expected visit should be free.
The Affordable Care Act mandates that certain preventive services be available for free, and your annual well-woman visit is among them. Others include immunizations, mammograms once you reach a certain age, contraceptives and more. As long as you go to the doctor only for your well-woman visit, you won't have to pay anything toward the deductible.
However, if you do get sick, you'll be responsible for your doctor's visit. Under some HDHP plans, a few visits to your general physician may be covered by a copayment, a single, relatively small fee. If this is the case with your plan, that fee won't be applied to your deductible. If the plan doesn't have a copay for this type of doctor visit, you'll pay full price.
How does this save you money?
People with predictable and low medical usage can benefit from a HDHP because of the lower monthly costs (premiums). In other words, someone who is healthy and doesn't use the doctor much stands to save considerably by choosing an HDHP with low premiums.
There is a bit of a risk involved with HDHPs, particularly if you have a medical emergency. But these health plans have a safety feature that can help buffer these expenses should more medical needs arise.
Health Savings Accounts: Safeguard against emergency expenses
A HDHP can be problematic if you have an emergency or unanticipated medical costs. For instance, if you're in a car accident, rushed to the hospital and admitted with several broken bones, you'll rack up quite a bill. And with a $5,000 deductible plan, you'll have to shell out all $5,000 before your insurance picks up a greater portion of the tab. (Still, you'll be paying less than if you were uninsured, as insurers negotiate lower rates with medical providers in their network.)
But there is a way to plan for these contingencies: health savings accounts, or HSAs.
HSAs were created specifically for people on high deductible health insurance plans. They allow you to set aside pre-tax dollars for your health care expenses. You elect how much money you want to set aside, and that amount, or a portion of it, can be taken out of your paycheck and placed into your account. Some employers even contribute to these accounts, further easing the burden of health care costs. When a health expense arises, you have the tax-free money at your disposal.
Because you're under no obligation to use the money you put into the account within any certain amount of time and can carry a balance from year to year, it's a smart savings strategy for health care costs well into your future.
Another perk of HSAs is that they are versatile. Once you reach age 65, you can use that money for non-medical purposes. You can also invest your HSA money the stock market. By investing your money, you may be able to increase the amount of savings you have to apply to health expenses over the course of your life. But remember, you can also lose money in the financial markets.
Finally, because you own your HSA, not your employer, you can take it with you when you move on. Keep in mind, however, that to keep contributing to it, you'll need to be under a qualifying HDHP.
Parting words of advice
If you anticipate low and predictable medical care usage this year, and you value low monthly costs, an HDHP is a good option. Make sure you sign up for an HSA, and allocate at least enough funds into it to cover your anticipated costs throughout the year.
Finally, remember all HDHPs are not the same. Before you choose a new plan, look at additional considerations like the size of the provider network and whether you'll need a referral to receive care from a specialist.