In the past few years since the qualified high deductible health plan (HDHP) was signed into law in 2003 as part of the Medicare Modernization Act, it has helped millions of Americans to afford the monthly premiums of health insurance programs. The original purpose of HDHPs was to lower health care costs by pushing plan members to analyze their health care decisions while making insurance premiums more affordable to everyone.
Qualified HDHPs are plans that meet the requirements for plan members also to utilize a health savings arrangement or health reimbursement account to help stretch health dollars further. Some critics believe that high deductible health care plans actually hurt consumers because they never fully pay the annual deductible before the plan year ends, so they get reduced coverage until that time.
However, the vast majority of employers offer a three-tiered choice of health care plans, and HDHPs are generally the preferred plans offered, outside of HMOs and defined contribution options.
How Do HDHP Plans Work?
Employers can elect the type of HDHP offered to employees. An HDHP can allow for only in-network coverage, similar to an HMO, or allow for out-of-network coverage, similar to a POS or PPO plan. If a plan has in-network benefits only, members cannot go outside of the network once the deductible is met. For a plan that allows both in- and out-of-network benefits, members will usually receive better benefits by staying in-network. All in- and out-of-network benefits offered through the HDHP plan, including prescription drug coverage if offered, must apply towards the deductible.
Many, but not all, HDHP plans will actually cover preventive and primary care physician visits for a low copayment, though this is not necessary. HDHP plans are not meant to cover the initial health care costs such as preventive, specialist and laboratory visits. Instead, they are meant to cover catastrophic events such as chronic illnesses or extended hospital visits. Plan policyholders are expected to pay medical office and facility payments till the deductible is met. Once members reach the out-of-pocket maximum, all medical services are covered at no costs.
What is the HDHP Deductible and Out-of-Pocket Maximum?
HDHP plan members have higher annual deductible costs for their health care coverage, as the plan name suggests. The deductible is the amount of money a plan member must spend from his/her pocket before coverage kicks in. At least part of this deductible amount is covered by the HSA or HRA. As part of the legislation, there are minimum deductible limits set each year and adjusted for inflation, for a plan to qualify as an HDHP.
The Internal Revenue Service (IRS) determines the annual limits for high deductible health care plans.
- Individual: 2016 - $1,300
- Family: 2016 - $2,600
The annual out-of-pocket maximum is the maximum amount of money the member pays before medical services are provided at no cost. The annual out-of-pocket maximum includes deductibles and coinsurance payments. Not included in the out-of-pocket maximum are lifetime maximum benefits, usual, customary and reasonable (UCR) amounts, existing benefit limits and pre-certification requirements. Like the HDHP deductible minimum, the out-of-pocket maximum is adjusted each year for inflation.
- Individual: 2016 - $6,550
- Family: 2016 - $13,100
There is also an IRS approved catch up contribution for those who are 55 or older of $1,000 per individual.
Benefits for Employers
Since HDHPs do not offer extensive health coverage, they offer much lower premiums to the consumer. With the higher deductibles, it’s thought that plan members are less likely to see a physician unless it’s medically necessary. It’s also thought that patients will seek out health services that offer good value for the dollar. Using an HSA or HRA with the HDHP can help lower premium costs, or seek self-pay options with providers who offer discounts. The HDHP plan means employees pay the lion's share of the deductible amount, keeping costs down for everyone.