Types of High Deductible Health Insurance Plans
So you have taken the first step and decided on getting a high deductible health insurance plan. Great! However there are many types of high deductible health insurance plans out there and it can get confusing to some people. Don’t worry we are here to help you sift through the alphabet soup of acronyms of different types of high deductible health insurance plans.
I will start in broad strokes – all the high deductible health insurance plans fall into CDHP or consumer driven health plans. Within the consumer driven health plans there are the high deductible health insurance plans. Going a step deeper in to the high deductible health insurance plans there are three different types of plans that you could choose from.
The first type of plan is called a health savings account. The health savings account works like a mixture of a traditional savings account and a high deductible health insurance plan. Basically, you set aside tax free money every month like a 401k. This money is used when you need to visit the doctor or pay for any other out of pocket health care cost. The money you put into this account is carried over from year to year so you can save up tax-free dollars to set aside to go towards your deductible every year. Since a health savings account is a type of high deductible health insurance plan you are protected from any catastrophic illnesses or diseases that might come in the future.
The next type of high deductible health insurance plan is a FSA or flexible savings account. The basic gist is similar to a health savings account in that you can put tax-free dollars into the account and use the money for health care costs throughout the year. Unlike HSA’s, flexible savings account money expires every year meaning that money you put into every year. This means that any unused money left over every year can be forfeited to the insurance company or in some cases back to you in taxable income. Why would anyone make a FSA account you may ask? Unlike HSAs which primarily deal with high deductible health insurance a FSA can be used in conjunction with any other form of health insurance. In addition, FSA’s are also usually lower in premiums due to the risk that you might not spend your full amount every year on health care costs.
The third type of high deductible health insurance plan is the HRA, or health reimbursement accounts. In a health reimbursement account you pay your health care costs up front and then your employer reimburses later. You as the employee put none of your own money into this account, instead your employer would put tax free dollars into this account for your medical coverage. Your employer will tie this account with a high deductible health care plan meaning in case of any catastrophic injury that you may have the HRA money will help fund the plan’s deductible. This sound like such a great plan. HRAs are great in the sense that you pay nothing, not even the cost associated with going to the doctor. The drawback to this plan is that your employer has discretion on what they call medical expenses. For example, if you go to the doctor 5-6 times a month then your employer has the right not to reimburse you for some of your doctor’s visit. So, if you trust your employer to reimburse your for your medical expenses then this is a great plan. It is a good plan if you seldom visit the doctor and are honest about your medical expenses.
These are the main types of high deductible health insurance plans out in the market today. Each plan provides you with greater control and flexibility of your health care costs. A high deductible plan is one of the best ways to save money on your medical expenses.