What is a High Deductible Health Plan?

High Deductible Health Plans (HDHPs) are insurance policies that have a higher than average deductible (the amount you have to pay for your health expenses each year before your insurance plan covers costs). They also have annual limits on the how much you have to pay out-of-pocket in the form of co-payments or co-insurance fees.

The right HDHP can save you money, give you a larger role in your healthcare options and, more importantly, allow you to participate in an HSA plan.

Which High-deductible Plans Works With an HSA?

To be used with an HSA, your high deductible health plan will have to meet the requirements set out by the federal government by 2003s Medicare Prescription Drug, Improvement and Modernization Act. Of course, the limits cited below may change periodically. To make it easier for you to keep track of them, updated limits are available in Internal Revenue Service Publication 969.

The basic HSA eligibility requirements for an HDHP are:

• The plan must have a minimum annual deductible of $2,650.00 per individual and $5,250.00 per family.
• The plan’s annual out-of-pocket maximum, including deductibles and co-payments, can’t exceed $5,000.00 per individual or $10,000.00 per family.
• It can only provide first dollar coverage for preventive care. (vaccinations, check-ups, etc.) That means you won’t have to meet your plan’s deductible before receiving benefits for your preventive care needs.
• Qualifying high deductible health plans are allowed to have higher co-payments and co-insurance rates for out-of-network services.

If you’re considering a High Deductible Health Plan solely for use with an HSA Account, remember that the maximum you can contribute to your HSA will be determined by the amount of your health plan’s deductible. If you’d like to build up tax-free savings, you’ll need to purchase a health plan with a deductible that’s as close to the mandated HSA contribution caps as possible.