Considering The High Deductible Health Plan (HDHP)

If an employee has a history of good health and the employer offers a high deductible health insurance plan (HDHP), it may make good sense for that employee to strongly consider the HDHP.

Here is why:
The benefits of a HDHP are lower premiums, access to a tax-free Health Savings Account (HSA) that may also include employer contributions, and an annual tax benefit, which in total may outweigh the exposure of the higher deductible.

The overall national adoption rate of HDHP policies has been rather low mainly because insurance carriers and employers have not effectively communicated the benefits of HDHPs even though they could clearly benefit many policy holders as well as employers.

Here is a simple example:
Let’s first assume that all of an employee’s premium savings will be spent on medical expenses. Now, let’s examine the potential benefits of a HSA account. If the policy holder invests $1,500 per year in a HSA of which $500 is spent on health care annually, and the employer contributes $1,000 to the HSA account, the policy holder will have $54,138 in 15 years assuming 6% growth rate. The $1,000 tax free employer match alone will grow to $27,069 for the same period.

Keep in mind that policy holders are eligible to contribute up to $3,000 for an individual and $5,950 for a family in a HSA and they receive “above the line” annual tax savings that can be exploited even if the policy holder does not itemize.

Exposure in HDHP policies being offered by employers is limited to the higher deductible. Therefore, employees need to assess the benefits of lower premiums, tax-free investing, and employer contributions in relation to the potential maximum exposure of the higher deductible.

Many employees will discover that the long-term benefit of adopting a HDHP policy outweighs traditional HMO’s and PPO’s. So, do not ignore the availability of high deductible policies. Check them out, you may be pleasantly surprised.