In the last five years, the number of people who have signed up for a High Deductible Health Plan (H...

1. Pros and Cons of High Deductible Health Plan
In the last five years, the number of people who have signed up for a High Deductible Health Plan
(HDHP) has increased drastically. An HDHP is like any other health plan in the market, but its one
distinguishing feature is the high deductible, low premium policy. The prospect of paying low
premiums every month, coupled with a Health Savings Account (HSA) has made HDHP a lucrative
deal for many people.
The idea behind HDHP is that the client will undertake all the expenses until a stipulated deductible
is met. Usually, the deductible is set at a higher amount than the traditional health insurance plans.
After the deductible is met, the insurer pays for the medical expenses of the client. The insurer
either covers the whole amount of medical expenditure or the client needs to chip in a part as co-insurance
till the stipulated 'maximum out-of-pocket' amount is reached. After this, the insurer has
to bear the entire cost of treatment. Irrespective of whether the client has reached the deductible
amount or the out-of-pocket amount, annual medical checkups - classified as 'preventive care' - are
allowed by the insurer.
Apart from having a high deductible, an HDHP makes an insured person eligible for an HSA. HSA is
a savings account where a person can put in his pre-tax money to cover his medical expenses. The
money in an HSA can also be used for investment purposes. However, if the money is used for non-medical
purposes, it will be liable for taxation.
HDHP Limitations for 2013
Minimum deductible for an individual = $1250
Minimum deductible for a family = $2500
Maximum out-of-pocket for an individual = $6250
Maximum out-of-pocket for a family = $12,500
Pros
One of the prime reasons people find HDHP appealing is because it offers individuals an option of
making lower monthly payments. With lesser premiums, people can save more money to meet other
necessary expenditures. In fact, the reason HDHP has been adopted by so many people since its
inception in 2004, is because of the perception that it cuts down the monthly cost of medical
expenditure.
Another advantage that people see in an HDHP is that it comes with an HSA. People want to save as
much as they want, and look for ways to prevent Uncle Sam from taking a cut from their 'hard-earned'
money. As one can list HSA as a tax-deductible contribution, the amount liable for taxation
by the IRS decreases. Also, the amount that one deposits in an HSA can be used to earn tax-free
interest. An HSA allows people to 'carry-forward' their savings onto the next calendar year as well.

2. Young people and people who don't have a history of any major illness can benefit from an HDHP. As
they rarely seek treatment and prescription drugs, they spend less on their out-of-pocket expenses.
With relatively lower premiums and a tax-free HSA, they can save more each month.
Corporations and other places which employ a large number of people have taken a strong liking to
HDHP. Many experts believe that the prime reason for this is that employees observe discretion
while spending on medical expenses as they are not covered by the company or the insurance policy
till the deductible is met. This, coupled with lower premiums leads to lesser expenditure on
managing the health cost that a company has to bear.
Cons
People who need frequent medical attention or are undergoing treatment for major illness need to
spend their own money on treatment. In these cases, where the medical cost is higher, the entire
savings of an individual will have to be used to provide treatment. Even after meeting the deductible,
the person will have to pay a part of expenditure as co-insurance till the out-of-pocket limit is
reached.
Many experts believe that HDHP has made people callous as far as taking care of their health is
concerned. In the traditional plan, the person is covered to see a doctor and buy prescription drugs.
However in an HDHP, the person has to spend his own money. So, instead of seeking the advice of a
medical practitioner, people may just wait for the illness to heal on its own. This attitude can cause
health problems and many potential diseases remain undetected.
While many people count on the low premiums while signing up for a high deductible plan, the
reality can be starkly different. Even after meeting the deductible, the cost of copay and co-insurance
can mean that you are spending more on what you would have, in case of a traditional
plan. Also, many HDHPs restrict the choice of doctors and hospitals, meaning that you don't have
many options to choose from. This results in people paying higher cost for their medication.
HDHP has its merits and demerits. The general advice that most experts give to people is that if you
are young and live a healthy life, HDHP can be the plan for you. However, if you have a chronic
illness or engage in smoking/drinking etc., a traditional plan may suit you better. It is important that
you read all the terms and conditions of the insurance policy before you settle for one.