 Personal Finance PowerPoint Presentation. How high deductible health plans work. Get ready to get financially fit by practicing personal finance. Remember that health insurance is part of our long term risk mitigation strategy where we use the adage of measure twice, cut once, going through a formal process, looking something like this. We're going to set the goals, develop a plan to meet those goals, put the plan in action, review the results and continue with that process periodically. We're now looking into high deductible health plans. Most of this information comes from Investopedia. How high deductible health plans work, which you can find online. Take a look at the references, resources. Continue your research from there. This is by Amy Fontinier, updated April 7, 2022. So we've been talking about different types of insurance plans focusing in on the health insurance here now, noting that health insurance can be a little bit more complex than say other types of insurance because most of the time we're insuring against some future event that might happen, might have a low likelihood of happening such as a house burning down or something like that. But because of the extreme financial burden that that would have, we're going to try to mitigate the risk insuring against it. We can have the same kind of thing for the health insurance in the event that we have a big event health-wise that would be quite costly. We would like to mitigate the risk with insurance. But there's a lot of other laws and regulations involved as well to try to increase the amount of insurance that we could be covered for including possibly the more routine type of visits. And so that makes these laws and just the healthcare industry themselves make the insurance a little bit more complicated in many regards as other types of insurance. So we're comparing and contrasting different kinds or groups of health insurance. We have now the how high deductible health plans work. Do you want to save money on your monthly health insurance premiums and have the opportunity to open a health savings account? So this is kind of interesting because notice that these plans are often ones that you would do if you're trying to basically save money which means you would think there would be less in terms of the benefits that you're going to be getting. But then because of the laws and regulations that are involved the government tries to step in and have other benefits that are kind of related to these high deductible plans. So it's kind of an interesting situation. So if so, you'll need to have a high deductible health plan. So that's going to be the HDHPs we're talking about. Let's discuss what these plans look like, their pros and cons and the times in your life when you might seek out or avoid an HDHP. What is a high deductible health plan you might ask? And if you don't ask, I'm asking it for you just if you didn't think about that question. According to IRS rules an HDHP is a health insurance plan with a deductible of at least $1,400 if you have an individual plan or a deductible of at least $2,800 if you have a family plan. The deductible is the amount you'll pay out of pocket for medical expenses before your insurance pays anything. So when we're talking about a high deductible we're going to say we got these deductibles that they're going to set certain limits at because the government then wants to put these other laws in place if you qualify for this HDHP types of plans. But the general idea would be if the deductible is higher with the deductible works as we have seen it's the traditional kind of health insurance type of system where you're going to say if some kind of catastrophe happens or if some event happens then you have to basically pay the deductible before the insurance kicks in. So you would think that that could be useful for people that are going to try to self-insure to some degree save up money and possibly people that aren't having the need to go to doctor visits all the time possibly younger more healthy people and or people that just can't afford the health insurance. And then when they have a need for it then you're going to pay the deductible and then it'll kick in after the deductible safeguarding you hopefully against the big event that would be financially kind of devastating. That's when the insurance will help you out in that case. So the deductible is the amount you'll pay out of pocket for medical expenses before your insurance pays anything. In addition the plans out of pocket maximum must be no higher than 7000 for an individual plan or 14000 for a family plan. So the out of pocket maximum is the most you'll have to pay in a year for medical expenses covered by your insurance plan. So if it goes over the deductible there still could be circumstances where you have to pay part of it for example and then there's going to be this cap that is the maximum. So that's again what you would like to be able to do would be nice if you can have self-insurance in the event of an emergency up to be able to cover if necessary the cap if some catastrophe happened because after that point in time hopefully the insurance kicks in for that type of event. So advantages of high deductible health plans the HDHP will usually have lower premiums than an equivalent health insurance plan with a lower deductible. So a higher deductible usually means that you're going to lower the premium because that's less risk to the insurance company and so that's the trade-off and just generally insurance terms for most types of insurance. For folks who don't anticipate many medical expenses for the upcoming year it makes sense to minimize your premiums and choose an HDHP. So if you're not someone that has a lot of doctors visits and so on if you're young and healthy then it might make it makes more sense then to have the high deductible one and have a cheaper premium and possibly pay for your own visits that you need to have where you're going to have to pay more as opposed to if you're in a situation where you're visiting the doctor a lot then it might actually be cheaper to pay for a higher premium type of plan which has more benefits for those routine types of visits. So there's a good chance you'll save money perhaps several hundred dollars or more over the year this way. Just be sure you can afford the out-of-pocket maximum worst-case scenario. So the idea would then be I'm going to self-insure possibly if possible so that if that catastrophe happens I can cover the deductible and I can cover the out-of-pocket maximum if I need to. That would be the ideal so that you're kind of covered in the event of that risk situation that would be a real tragedy kind of health-wise type of situation which could be financially costly. So if you can't you could end up with a physical debt and the added interest will make it even harder to pay your bills. A health insurance plan with higher premiums but an affordable out-of-pocket maximum might be a safer choice if the HDHP's out-of-pocket maximum is more than you can afford. Here's like an example comparison of the HDHP that's the high deductible we're looking at versus the non-HDHP and we've got the premiums at the 1,500 versus the 3,000 so a significant difference can be there for the premiums the amount you pay, the deductible being higher for the HDHP significantly for certain events that could take place versus the non-HDHP meaning you pay the deductible before the insurance kicks in and then you can see in this example we got the total cost before co-insurance at the 4,500 note that the HSA is eligible for the HDHP versus the non-HDHP and as you now you can think about why exactly would that happen you can imagine that the HDHP is likely to be taken by lower income people or possibly people that kind of want to do more of their own self-insurance up to like a degree for example and because possibly more low income individuals would be taking the HDHP because of the lower cost then you can imagine Congress saying well that would mean that they might not have as much access to their or the routine kind of maintenance kind of stuff for the doctor's visits and so we want to give them that in some way so that's when they got these other laws that come in like an HSA which might be available which could be helpful but also can be a little bit confusing so you got to make sure that you're understanding how an HSA works health savings account if you have a high deductible health plan so the options above show a situation where it clearly makes sense to be with either plan you'll end up spending $4,500 of your own money in premiums and deductibles if your medical expenses for the year are at least as much as your deductible but with the HDHP you're only guaranteed to spend $1,500 in premiums unless you know for a fact what your upcoming medical expenses will be so also having the HDHP lets you contribute to a health savings account so if you got that plan again the government puts in these other incentives possibly if you're in the 24% federal tax bracket and you do incur $3,000 in medical expenses you could use your HSA to pay for them with pre-tax dollars so in other words you can get a tax benefit if you properly use the HSA and use that for your spending for the medical spending in a proper way so if you used post tax dollars that same $3,000 in medical expenses could cost you $4,000 if you choose the lower deductible plan the non HDHP you could pay for $2,550 of your $3,000 in medical expenses with a flexible spending account so now we have the FSA the flexible spending account if your employer offers one so that is an account that typically would go through or be part of a benefit that might be offered through the employer as opposed to the HSA health savings account which you might be able to set up on your own then you'd have similar tax savings with the non HDHP as well even the simple example isn't really that simple it's really not similarly most real-life situations aren't clear cut as to whether you should select a high deductible or low deductible plan to do the math for your own circumstances taking into account your likely medical expenses for the year and the premiums deductibles and out-of-pocket maximums for the available plans so we got the high deductible plans and preventative care so the preventative care those things that you're trying to do like the more routine kind of stuff so if you do choose the high deductible plan you'll still have 100% coverage for preventative services from in-network providers before you meet your deductible because of the affordable care act requirements so now you've got the kind of you got this question in terms of what is kind of preventative care versus what is like a normal doctor visit type of scenario that wouldn't be preventative care preventative care now becomes like a key word with that normal maintenance kind of stuff because again you can see the laws and regulations trying to make it so that people are going to get the preventative care and again you can kind of see how all of this distorts things because it kind of moves away from what traditional insurance was traditional insurance kind of was there to safeguard you against a big event that happens kind of like your home burning down for the property insurance and if we now have preventative care covered it's kind of like if you had car insurance and they're trying to get the insurance to cover the cost of the oil and the tire rotation and stuff like that you can see how that's going to distort the insurance costs and that kind of stuff you can't just if you change one thing and it's a free market everything else is going to kind of change so now we've got this other definition for what is it to be preventative versus other kinds of doctor visits so quite a few services fall into this category and you aren't responsible for any co-payment or co-insurance for any of them so notice I might use that term like preventative care kind of interchangeably sometimes when I'm trying to say normal health doctor visits doctor visit type of situations but you might use that term more strictly as well to decide what is preventative care versus other types of care for the purposes of the coverage so here are a few examples taken from the healthcare.gov which you can take a look at online so for adults abdominal aortic aneurysm one time screening for men of specified ages who have ever smoked aspirin used to prevent cardiovascular disease for adults of certain ages blood pressure screening cholesterol screening for adults of certain ages at high risk colorectal cancer screening for adults 50 to 75 depression screening, diabetes type 2 screening for overweight obese adults 4270 certain immunizations for adults such as the flu shot for women we have the anemia screening on a routine basis breastfeeding comprehensive support and cancelling from trained providers and access to breastfeeding supplies for pregnant and nursing women we got the contraceptives food and drug administration approved contraceptive methods sterilization procedures and patient education and cancelling as prescribed by a health care provider for women with reproductive capacity not including abort efficient drugs this does not apply to health plans sponsored by certain exempt religious employers breast cancer mammograph mammography screening every one or two years for women over 40 cervical cancer screening every three years for women 21 to 65 osteoporosis screening for women over age 60 depending on risk factors well women well women visits to get recommended services for women under 65 with regards to children we've got the autism screening for children at 18 at 18 and 24 months we've got the behavioral assessments the blood pressure screening the depression screening for adolescents the development screening for children under age 3 hearing screening for all newborns vaccines for illnesses such as whooping cough influenza and the chicken pox the HSA eligibility that's the health savings account so as noted already the other major advantage of having the HDHP besides typically lower premiums is that allows you to contribute to a health savings account so these can get a little bit complex but if you're able to figure them out and combine them with the high deductible insurance you could save money with them possibly so because the HSA contributions come from pre-tax dollars you can save a considerable amount on your medical expenses when you pay for them with your HSA so in other words your expenses will be paid and you're going to be paying possibly more of them due to the fact that you have the high deductible plan you might be able to get a tax benefit from them if you properly use the HSA so for example if you're in the 24% federal tax bracket a $100 medical bill will effectively cost you $76 you must have an HDHP to be eligible to contribute to an HSA health savings account and in order to be eligible to receive any employer contributions to your HSA so you might have employer contributions to an HSA as well so you can discuss that with the employer in fact free money in the form of optional employer contributions to your HSA is another potential benefit of having an HDHP and an HSA in other words you might be able to get an employer benefit by contributing to the HSA and get tax benefits for that getting kind of like a form of compensation that has tax benefits for it rather than in the form of just straight wages where you obviously would be paying taxes it would be reported on the W2 and so on so in addition you don't have to keep your HDHP forever to take advantage of an HSA in future years contributions carry over from one year to the next and you can invest your contributions to help them grow in the future even if you no longer have an HDHP you can use money previously deposited to your HSA to pay for health expenses so you're going to try to get the tax benefit by putting the money into basically this HSA health savings account in some form or another possibly through the employer possibly setting one up and the problem with that is that the money is restricted in that case because you got to spend it on medical expenses because that's the point that's why you got the benefit from it but obviously you don't know how much medical expenses you're going to have from year to year you're just kind of estimating but if you don't spend them in that year then the question is well what do I do now I got this money in an HSA it's kind of locked up where you might be able to earn revenue on it and then possibly take it out hopefully be able to take it out in the future for qualifying reasons such as medical expenses in the future which would be the idea and hopefully give a tax savings for that so disadvantages of high deductible health plans the big drawback to choosing the HDHB is having potentially high out-of-pocket expenses for the year as of January 1st, 2021 the Affordable Care Act rules states that the most any person can pay out-of-pocket maximum is $8,550 for in-network benefits $8,700 for $2,022 maximum is $17,100 $17,400 for $2,022 previously insurance plans could require that one person in a family plan meet the family maximum this new rule limits your risk if you have a family health insurance plan once any family member has $8,850 in medical expenses their costs may be 100% covered for the rest of 2021 so now you got to worry about those maximum out-of-pockets they could have and ideally you would like to be able to have enough money in the event that some medical problem happened to cover the maximum the family plan is kind of interesting because you got these maximums for the family plan but if one individual had the problem and they hit that $8,550 my interpretation is that that's the individual max for that component and then the health insurance might kick in even though the family max got the $17,150 in that comparison so another potential problem with enrolling in an HDHP is that you may find yourself wanting to skip doctor visits because you're not used to having such high out-of-pocket costs so this is what the argument is you can see this from a political perspective they're trying to kind of eliminate these high deductible ones some people would kind of like to because they say that it disincentivizes people to do more of the preventative stuff which now when I use the term preventative you know some of those preventative things they're trying to get the preventative things to be covered and other if they're under the term of preventative but you know the normal routine kind of maintenance type of things that are usually good things to do or possibly could be good things to do for preventative or just to keep you aware of your health situation maybe things that you're less likely to do if you have those out-of-pocket costs related to them that would be the argument so don't choose an HDHP if it will cause you to fall sick or hinder your recovery because you want to save money in the short term by avoiding doctors procedures or prescriptions it will cost you more and the long term plus you'll be physically uncomfortable so high deductible health plans and you whether or not it makes sense to have an HDHP depends on your life stage and the associated medical expenses you're likely to incur in particular you should weigh the benefits of lower monthly premiums against potentially accumulating higher deductibles and out-of-pocket expenses that can add up and overwhelm some consumers if you're young and healthy and rarely go to the doctor or take prescription medication you'll probably save a lot of money by choosing an HDHP since the premiums are lower so when you're young and healthy then it's more likely that they would pay off and you'd still be covered against the big event that happens that's what young healthy people usually kind of forget that they can they can have a medical problem and they want to be covered against it hopefully it does just like the house burning down we hope it doesn't happen but you want to be covered if that happens and then you might also think that you can you can self-insure to some degree as well and use the high deductible and possibly take advantage of the tax benefits too so if you're planning to have a baby in the near future an HDHP might not be a good choice since the cost of hospital childbirth are high and your out-of-pocket expenses could easily hit your high out-of-pocket maximum so obviously having a baby there's a lot of doctor visits there so you might hit the maximum in that case so it may actually be more cost effective to instead consider a plan with lower deductibles and lower out-of-pockets even if the premiums are initially higher similarly a HDHP also might not make sense if you have young children since they tend to visit the doctor frequently so you know if you're young and healthy we usually mean like older than 18 you're a young adult and healthy but obviously children you typically want to have more screening or typically just torture the poor kids by making them go to the doctor and dance around with things in their ears and stuff so which can quickly accumulate the deductibles that could be costly that kind of fun time could be costly so when your children are older if they and you are healthy and HDHP might make more sense on the other hand if anyone covered by your plan has a chronic condition that needs ongoing treatment you might benefit from a plan with a low deductible finally if you're older you're statistically more likely to have higher medical expenses so you may not want to take a chance on HDHP but if you're still a good health and have no reason to anticipate expensive healthcare costs an HDHP might work for your circumstances despite your age whether an HDHP will save you money always depends on the details of the specific plans available to you and your expected medical expenses for the year an HDHP is not automatically a better or worse deal than an insurance plan with a lower deductible just because your circumstances fall into a certain category you always have to do the math for your own situation which is hard because you're trying to predict your medical costs in the future so it's not an easy thing to do so how do I know if I have an HDHP high deductible health plan so if you have access to a health savings account an HSA then you have a high deductible health plan this type of insurance has a lower premium and a higher deductible than a traditional health plan having an HDHP is one of the requirements for a health savings account an HSA if your current health insurance plan for 2021 has a maximum deductible of $1,400 or $2,800 for family coverage with a maximum deductible of $7,000 $14,000 for family then it qualifies as an HDHP what is the main drawback of a high deductible health plan you could potentially be on the hook for expensive out-of-pocket medical expenses so that's the tradeoff so you'll have to meet the deductible if your plan before the plan starts to kick in for coverage cost the plan will pay for preventative medical care such as routine visits and well baby checkups but an accident or unexpected illness could be thousands of dollars in payments in medical providers what is the main benefit of high deductible health plan so if you are generally healthy and want to save for future health care expenses the high deductible plan gives you access to a triple tax advantage saving vehicle the health savings account so the HSA can make sense for many people especially those in retirement because the money can be used for medical care in retirement which can be nice if you can save that money up in an HSA get the tax benefit for it going into retirement when you might be using more of that money for those medical expenses what's the bottom line what's the bottom line an HDHP can save you money in the form of lower premiums and the tax break you can get on your medical expenses through an HSA health savings account it's important to estimate your health expense for the upcoming year and see how much you'll be responsible for out of pocket with an HDHP before you sign up in some cases I plan with a lower deductible will save you money even though it will usually have higher premiums and won't let you have an HSA in addition if your employer offers it you can use an FSA to get tax savings on your medical expenses with a lower deductible plan