As healthcare costs steadily increase, many employers are shifting to high deductible healthcare plans (HDHPs) for their employees. An HDHP has a higher deductible than a traditional health insurance plan. In exchange for a higher deductible, the monthly premium is usually lower, but you pay healthcare costs out-of-pocket before your insurance company starts to pay.
HDHP vs. PPO and HMO
Traditional PPOs and HMOs are expensive for employers as well as employees. The Institute of Medicine estimates that 30 percent of health spending is waste. HDHPs are designed to reduce unnecessary healthcare spending and encourage consumers to take an active role in managing their own healthcare costs. Instead of paying high premiums for benefits you might never use, an HDHP allows you to decide how you want to spend your healthcare dollars.
Additionally, HDHPs can be combined with some form of savings option to allow you to set aside pretax dollars for out-of-pocket health care expenses. The savings options take several forms, including tax-free individual health savings accounts (HSAs) and employer-sponsored Health Reimbursement Arrangements (HRAs). The combination of an HDHP and a tax-free savings account is known as a consumer directed health plan (CDHP).
How HDHPs Save You Money
If you are in good health, like the idea of low monthly premiums, and plan to use your insurance for routine preventive screenings, an HDHP can help maximize your healthcare dollars. HDHPs encourage healthy living, routine preventive care, and comparison shopping for high-quality, low-cost medical services.
Because you are paying upfront for covered medical expenses, you will be charged a lower, negotiated rate between the healthcare provider and the insurance company. Preventive services like vaccinations, colonoscopies, mammograms and flu shots are covered at 100 percent, so there is no need to budget for these services. Since you are directing your own healthcare spending, you will likely make healthier lifestyle choices that will lower your risk for chronic conditions and expensive medical procedures.
How do HDHPs Work? Take the Time to Learn.
Although HDHPs have spiked in popularity over a short period of time, there is a general lack of understanding about them. Also, many people feel uneasy about switching to an HDHP until they learn that HDHPs can offer consumers more flexibility and control over their own healthcare costs.
If your employer is offering an HDHP, take some time to familiarize yourself with the details. This healthcare plan may work differently than any of your previous plans. It will take some time to get used to paying out-of-pocket for doctor visits and prescriptions until you reach your deductible. It is important to invest the money you would have spent on higher monthly premiums in your HSA or other tax-free savings account. This requires discipline and planning, but it will soon become a habit.
Take ownership of your medical care and get informed. Whether you selected an HDHP or the decision was made for you, see this as an opportunity to take initiative in your healthcare. You may find that the traditional PPO you have always chosen may not be the best use of your money.
Not all HDHPs are created equally, so contact your human resources department or benefits coordinator for more information about your HDHP. You may want to ask for literature or video tutorials so you can share the features of your HDHP and HSA with your spouse or partner. The more you learn about your new healthcare coverage, the more adept you will be at making cost-conscious, informed decisions about your medical care.