You have the option of a high deductible health plan with low premiums with an employer incentive. Is it right for you? When choosing a high deductible plan, you should consider (1) utilization and the difference in health plan premiums, (2) the usefulness of a Health Savings Account (HSA) and (3) the difference in out-of-pocket maxes for both plans.
The biggest factor in choosing a high deductible health plan (HDHP) is utilization. How much healthcare do you plan on using in the next year? Do you like to see specialists? If you use a moderate amount of medical care a year, a normal health plan might be the best for you. However, if you have low or high utilization, HDHPs can be a great choice. In addition, if you like to see expensive specialists. HDHPs, which are generally PPOs, but this is changing, can get you into see that specialist without a referral.
Another benefit of a HDHP is that your premiums are lower, often substantially so compared to other plans. However, an HDHP usually has a higher deductible, which means that your out-of-pocket costs for sick care will be substantially higher. A deductible is the fixed amount you have to pay before insurance pays costs.
A HDHP is a good choice if you think your utilization will be pretty low; you can use the money saved on monthly costs for when you do need to visit the doctor and it will be tax-free. On a side note, we are only discussing sick care, because preventative care is covered fully under any health plan.
The biggest plus of having an HDHP is that you get access to a Health Savings Account (HSA). An HSA is a pre-tax account that grows tax free and can be spent on healthcare now or in your golden years. Most of the time, your employer will even put money into your HSA as an incentive for choosing a HDHP.
While this is not always the case, out-of-pocket maximums are generally lower in High Deductible Health Plans. If you have high healthcare utilization, it can be better to choose a HDHP, as you will not pay more yearly than the out-of-pocket maximum. In addition, the money for your out-of-pocket max can come directly from your HSA, meaning that you are paying pre-tax dollars for your medical expenses, instead of post-tax dollars in a normal health plan. For instance, if you get yearly surgeries like biopsies or have chronic conditions, HDHPs can be a good choice.
All in all, an HDHP is a good option for you if your utilization is low or very high, and you want to cut down on your healthcare expenses by having an account that is pre-tax with untaxed investment growth. Check out the chart below to quickly compare the benefits of each plan!