High Deductible Health Plans (HDHP), sometimes referred to as catastrophic health insurance, are individual or group health insurance programs that have annual deductibles of $1000 or more. The higher the deductible, the lower the monthly premium. Some HDHP allow for preventive care before the deductible is met, while others do not pay for any services until the entire deductible is met.
The Pros of Using a High Deductible Health Plan
Deductibles in HDHPs can range anywhere from $1000.00 to $10,000, depending on what the insured chooses. For many group plans, the deductibles may range from $1000 to $2500 but individuals may choose a much higher annual deductible. The higher the deductible, the lower the monthly premium. This type of arrangement can be beneficial for young people, who do not yet have chronic medical conditions and therefore may not ever need to utilize health insurance and may benefit from the low monthly premiums. In addition, some older people who are planning to receive Medicare insurance within a year or two might benefit from the lower premiums and are more likely to have money put aside to cover the deductible should it be needed.
When combined with a Health Savings Account, HDHPs can allow healthy individuals and families to put money aside with certain tax benefits. For those who can cover the deductible without causing financial hardship, HDHPs can help to reduce monthly bills by reducing the monthly premium.
The Cons of Using a High Deductible Health Plan
Some people may get lured into the idea of lower monthly premiums, believing they can save money for the deductible as the year progresses. However, for those worried about saving money, having the money on hand to cover the deductible may not be possible. When medical care is needed early in the year, the insured may not have the ability to pay for health expenses.
Many catastrophic health plans have a lifetime maximum benefit of either $1,000,000 or $5,000,000 or anywhere in between. Once the insurance company pays that amount for health care, no more benefits will be paid.
For HDHPs that do not allow for preventive care, even taking a child to the doctor for immunizations can end up costing several hundred dollars. This would all need to be paid by the insured, until the annual deductible is met (and even then, depending on the policy provisions for preventive care, may be the insured’s responsibility.) In addition to preventive care, prescription medication is extremely expensive and one prescription can run in the hundreds of dollars. If the plan does not cover prescriptions before the deductible is met, keep in mind, the insured will need to pay for all prescription costs until the annual deductible is met. (However, for plans that do allow for prescription costs prior to meeting the deductible, Health Savings Accounts are not qualified for tax purposes.)
Normally, High Deductible Health Plans are more beneficial to those who do not have high annual health care costs and do not have ongoing medical conditions.
Sources:
“Consumer Directed Health Plans (CDHP’s)”, Date Unknown, Author Unknown, Providence Health & Services
“Do High Deductible Health Plans Threaten Quality of Care?”, 2005, Sept, Thomas H. Lee, M.D., Kinga Zapert, PhD, New England Journal of Medicine
“Health Spending Accounts and High Deductibles”, Date Unknown, Author Unknown, California Department of Managed Health Care
Eileen Bailey - Eileen Bailey is a freelance writer. She began her writing career almost 20 years ago writing marketing material and sales presentations. ...
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