All the media attention surrounding the Affordable Care Act seems to be focusing on problems with HealthCare.gov and insurers canceling health policies.
What the media should be focusing on are the specific decisions that individuals and families must make, such as choosing between a high-deductible health plan (HDHP) or a low-deductible health plan (LDHP). This decision has significant financial implications.
Which Plan Is Really Better?
In an HDHP, an individual must pay at least the first $1,250 ($2,500 for families) in medical costs out-of-pocket. This is also known as a deductible. Paying $2,500 out-of-pocket may sound daunting. But, before automatically selecting an LDHP, consider the following.
First, determine the difference in premiums between an HDHP and an LDHP. The HDHP premiums are usually significantly lower, so this offsets the higher deductible.
Second, determine your coinsurance amount, which is the fee you’ll pay after meeting the limit of your deductible. This may be a small copay per visit or it may be a percentage of the services. HDHPs sometimes have better coverage after the deductible than LDHPs.
The best feature of an HDHP is that you are eligible to participate in a Health Savings Account (HSA), which offers a number of attractive features.
Benefits of a Health Savings Account
HSA contributions are deductible on your tax return and can be used for a broad range of health care costs, including dental care costs. Individuals can contribute $3,300 and families can contribute $6,550.
HSA funds grow tax-free and can be invested. This is useful if you don’t expect to use the entire balance of your HSA each year.
Unlike a Flexible Spending Account (FSA), money contributed to and interest earned in an HSA will roll over from year to year. It is not a “use it or lose it” account.
Learn Which Plan Is Best for You
If you need help choosing a plan, please contact your Abacus financial advisor. We’ll be happy to “run the numbers” for you, explain in more detail how HSA plans work and give you some good options for HSA custodians. If it helps, you should know that the vast majority of Abacus financial advisors chose the HDHP option and opened an HSA.
