High Deductible Health Insurance Plans For Individuals and Families

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High Deductible Health Insurance Plans For Individuals and Families

By: Michael Ertel

Do you pay more attention to your car than your body? You change your oil every 3000 to 4000 miles. You have your tires rotated every other oil change. Your air filter and brake pads are changed at the appropriate intervals.

Now, what about your body? You follow the recommended AMA guidelines for routine check ups and other healthcare services. You pay special attention to make sure you eat a balanced diet and always take the time to get enough exercise. The reality is many Americans pay more attention to the maintenance of their car than they do their body.

From an insurance perspective, your automobile insurance company has a certain expectation that you will take reasonable care of your car. Things such as the routine maintenance of brakes and making sure your turning signals work properly are expected by your insurance company. Basic common sense says that proper automobile maintenance reduces traffic accidents and saves both you and your insurance company money.

Health insurance consumers can benefit by taking a similar approach to taking care of their body. For the average American, regular exercise, routine check ups and following your doctor's advice will reduce your healthcare costs in the long run. It is really very simple. By doing the things necessary to stay healthy, you will need to seek medical care less frequently.

Even with a commitment to stay healthy, you will still need health insurance coverage to take care of the unexpected and sometimes unavoidable catastrophic situations. However, instead of paying the insurance company for a $250 deductible, many individuals would benefit by purchasing a high deductible health insurance plan. Depending on the specific situation, it is not uncommon for individuals and families to save up to 25% on premiums with a high deductible plan. Health Savings Accounts (HSAs) can then be set up to coordinate with the high deductible plan. Approaching health care and health insurance wisely will benefit both your body and pocketbook.

About The Author

Michael Ertel is the founder of http://www.MedicalInsuranceNow.com which is a website that assists individuals and small business owners by providing side by side comparisons of health insurance alternatives.



Andrew C 13.09.2007. 17:00

Could someone tell me how a high deductible health plan works? I am confused with regards to how a high deductible health plan works, please help!

Andrew C

Admin 13.09.2007. 17:00

A High Deductible Health Plan (HDHP) is a plan that conforms with IRS guidelines. It is used in conjuction with a Health Savings Account (HSA). As the name suggests, the deductible (the amount you pay before the insurance kicks in) is relatively high, but that means the premiums are lower.

Under federal law, the minimum deductible in a HDHP plan is $1,100 for an individual and $2,200 for a family. The advantage of an HDHP is that you can shelter up to $2,850 for an individual or $5,650 for a family per year from state and federal taxes in a Health Savings Account (HSA). You cannot use the tax-free money to pay the premium, but you can use it to pay the deductible and your part of co-insurance. Depending on your tax bracket and where you live, that could save you as much as $2,539 in taxes per year, assuming a combined tax rate of 44.95%?9.3% in state income tax (California), 28% in federal income tax, and 7.65% in Federal Insurance Contributions Act (FICA) tax. In other words, you increase your buying power by 45% by using tax-free dollars to pay your deductible, rather than using dollars with taxes taken out.

The contributions you make to an HSA are yours to keep, rolling over from year to year. The funds remain untaxed as long as you use them to pay medical expenses or withdraw them after age 65. The funds earn interest on a tax-deferred basis. Think of it as an IRA that you can use to pay out-of-pocket medical expenses.


Aaron 05.09.2011. 05:45

What type of health insurance is the best? I have twin baby boys & I am a single 20 year old mother. Never been married, non smoker. I am also a college student. I am looking for health insurance plans for my family. I need cheap, yet good. I really want to stay away from government help so I would like to keep Medicaid out of it. I also do not know where to start even beginning to look for insurance. Help?


Admin 05.09.2011. 05:45

Only you can determine what is the best health insurance plan. I say that because you are the one that has to make the decision of what the right balance is between affordability and policy benefits.

For example, if you choose a plan that covers everything i.e. doctors office visits, prescription drugs, preventative health benefits, maternity coverage as well as low deductibles, low co-pays and optional vision and dental benefits your monthly premiums will be significant. Is the most comprehensive policy coverage the best health insurance? You have to decide if that is the best.

On the other because you are young, healthy and probably use the health care system sparingly you could consider a Health Savings Account plan in conjunction with a high deductible health plan. In exchange for a lower monthly premium, you agree to pay for your health care costs unless there is a major health expenditure. Is this approach the best health insurance policy? You have to decide.

If you'd rather have more comprehensive individual health insurance coverage, with features such as preventive care coverage, consider a PPO or HMO plan with an in-hospital deductible. to keep the cost down you might consider higher co-pays for doctor's office visits and perhaps not cover prescription drugs. Either of these approaches will result in a lower monthly premium. You then can use the monthly premium savings to pay for the occasional doctor visit or prescription and still come out ahead. Is this approach the best health insurance policy? You have to decide.

You need a trusted adviser to help you through the process of purchasing health insurance so that you understand what you are purchasing. That adviser can answer questions as to what is and is not covered by the policy, explain deductibles and copays and show you the hospitals and doctors that participate in the network. Armed with knowledge of the coverage available and the associated costs you can decide what is the "best" policy. Check with the agent that writes your home or auto insurance he/she can provide you a health insurance proposal that takes into account your budget and health situation.

Some are going to suggest you go to their web site so that they earn a few pennies on a "click through". Some may suggest going on line to get a quote but you probably already know that there is more to a good health insurance policy than price. Use the Internet to educate yourself but use an agent to purchase the coverage.


ohwonderboy 14.01.2007. 16:02

What are the rules regarding Health Savings Accounts? I started a new job back in Aug. 2006. My employer offers a group health insurance plan but it is not a very good one and has a high deductible. The company dropped the ball in getting me signed up for the plan in time and now their not so good plan isn't even going to cover a pre-existing condition. I talked to the boss and came to an agreement that in lieu of being covered under their plan they would just contribute $130 monthly (the same amount they would pay to put me on their plan) to a Health Savings Account that I could use to pay medical expenses. He came back and said that he could not make good on the agreement because he was told I had to have some type of insurance coverage to contribut to an HSA. He also said that the max I (or the company on my behalf) could contribute to one of these type accounts is $1100 annually. Which is $460 less than what we agreed upon. Can anyone explain the rules of HSA's to me and what other options I might consider to work this out?


Admin 14.01.2007. 16:02

An individual can set up an HSA for himself or his family. An employer can add an Health Savings Account option to the so-called cafeteria benefit plan it may already offer.

The money put into the plan is before taxes, including Social Security, if part of an employer plan. Otherwise it is a above-the-line deduction, meaning you don?t have to itemize your deductions to get the tax break and that the deduction is not subject to the phase-out rules that make many itemized deductions unavailable to high wage earners.

The Health Savings Account is set up like an IRA. A trustee approved by the IRS must be used. Money put in the plan grows tax free and funds withdrawn for qualified medical expenses are also tax free. Unlike the older Flexible Savings Accounts offered in employer cafeteria plans, you don?t have to spend the money put into the account by year end or otherwise lose whatever?s left. Money can be rolled over from year to year. This can allow for a nice chunk of money to accumulate that can be withdraw tax free at age 65.

In order to qualify for a Health Savings Account, the individual or family must purchase a high deducible health insurance policy. These are special policies that have a minimum deductible of $1000 to a maximum of $5000 for an individual and $2000 to $10,000 for a family. The higher the deductible, the lower the premium.

Individuals can contribute and deduct the lesser of $2250 or the deductible on the policy: for married couples or families it is double that. If over 55, the contribution and deduction is $600 higher for individuals and $1200 higher for couples and will continue to rise at $100 a year until 2009, where it will be capped at $1000 for individuals and $2000 for families or couples.

The money in the Health Savings Account cannot be used to pay the premiums for this policy except in certain circumstances (basically when you?re unemployed). It is meant to meet the deductible on the policy, co-pays, drug costs, eyeglasses or any other medical expense that could be itemized on an individual tax return as a medical expense.

Money used to pay qualified medical costs is withdrawn tax free. Money withdrawn in excess of qualified medical expenses is taxed as income and subject to a 10% penalty, unless the owner is disabled or over 65. Any money in the account at death is added to the taxable estate.

There are no income limits on Health Savings Accounts. If started early, when you are still young and healthy, a substantial amount of money could accumulate to either meet higher medical costs as you get older or to use to supplement your income in retirement.


Brett H 10.12.2009. 02:53

Can my wife and I each have an FSA and HSA with a child and two separate health insurance policies? I am married and my wife and I have health insurance separately through our respective employers. My plan is a copay plan with an FSA. Hers is a high deductible plan with an HSA. We have a baby due on January 10th and will put the baby on her insurance policy. Can we keep both her HSA and my FSA, or do we need to get rid of one, and if so, when? Can we finish out the year, or does it stop immediately?

Brett H

Admin 10.12.2009. 02:53

As long as she is only depositing the amount for an individual now then you're fine. Once the baby is born she can deposit the entire family amount into the HSA. What she has doesn't affect you and vice versa. However, she CAN use her HSA funds for your medical care. Once the baby is born you're better off fully funding the HSA rather than the FSA unless you're doing more than the ~$6000.


Carmen 16.07.2007. 17:39

How would Bush's proposal for tax deductible health insurance work? I understand that he would propose a $7500 tax break for singles, $15000 for family. What currently comes out of my paycheck for insurance would become taxable. So, am I to believe we will be getting (yet another) tax statement from our employer or insurance company (for individual plans) telling us the value of our health insurance? I estimate my insurance (and I arrived at this by checking what my COBRA payments would be should I leave the company) to be worth $14400, pretty close to the max allowed under Bush's proposal. I by no means think I have "cadillac" health insurance. My preventative care is already 100 % covered. I pay a $1000 deductible for every family member (max of $3000) even before my insurance kicks in. After that I pay 15% coinsurance until my max out of pocket is met $5,000. This is assuming I stick with in network providers. I pay $83.50 every two weeks in premiums.

I would be for this plan if all the money taxed off the upper crust was put into a fund
I have continuously read of instances where Bush attempts to change allocated funds to "block funds", (like the Head Start program), allowing the states to essentially spend these funds on anything other than what the funds were intended for.

For a single person with no dependents makeing $14000 at a retail store, I fail to see how this would make insurance affordable to them. I personally think that the government should pay 100% if preventative care and also kick in money for a gym membership. Maybe mandate a high deductible insurance plan (also free) for major catastrophes. Anything supplemental coverage would be the resonsibility of the individual.


Admin 16.07.2007. 17:39

OK, I think instead of kicking in money for a gym membership, we should have "state sponsored gyms". Which is kinda silly, because we have state paid for sidewalks and streets, and MOST people have shoes, and you can walk/run down the street for NOTHING. Use the stairs, not the elevator. Park at the far end of the lot. Walk to the grocery store. Outlaw fast food joints. And ice cream. And smoking, and booze, and private car ownership - if we all BIKED to work, we'd be much healthier. That will do WONDERS for our health.

I'm not familiar with Bush's plan. Sorry, haven't heard of it. But I do know that anything government does, they do it the least effeciently with the highest fraud. So I'm not crazy about government controlled anything (except military). And I'm REALLY not crazy about government health care, social medicine, whatever you want to call it. It works about as well as government housing - which I do NOT want to live in.


8 14.03.2008. 04:56

Are there health insurance plans that are low premium, high deductible? I mean like a $5,000-$10,000 deductible or higher. I have a lot of savings but I'm going to have a part-time job for a little while. I'd like to just pay $100-200 a month or lower for health insurance. Or as low a premium as possible.


Admin 14.03.2008. 04:56

You might consider enrolling in a ?qualified? High Deductible Health Plan (HDHP). This is health insurance with high deductible amounts, so it costs less than traditional health insurance. Under federal law, the minimum deductible in a HDHP plan is $1,100; the maximum deductible is $5,500 for an individual (and $11,000 a family).

The advantage of an HDHP is that you can shelter up to $2,850 for an individual from state and federal taxes in a Health Savings Account (HSA). Depending on your tax bracket and where you live, that could save you as much as $1,499 in taxes per year, assuming a combined tax rate of 52.6%?9.3% in state income tax (California), 28% in federal income tax, and 15.3% in self-employment Federal Insurance Contributions Act (FICA) tax. Another way of looking at it is that an HSA doubles your buying power, since you are using pre-tax dollars to pay for deductibles. The contributions you make to an HSA are yours to keep, rolling over each year. The funds are not taxed, provided you use them to pay medical expenses or withdraw them after age 65. The funds earn interest on a tax-deferred basis. Think of it as an IRA that you can use to pay out-of-pocket medical expenses.

To find a qualified plan, you should speak with a health insurance broker. A broker works with several insurers and can find the best plan, rates and coverage. To find a broker, log on to a website like http://www.healthinsurancewiz.com and fill out a form requesting a free quote. Your information will be sent to a broker in your area who will contact you. Good luck!


Emmy 30.01.2013. 02:28

Will I have to pay the individual or family deductible? My husband and I have a high deductible health plan. We were just switched to this plan because his company no longer offers the low deductible plan we were on previously. I'm pregnant, and assume I will have the pay the deductible fully, and more beyond that, to give birth. My husband thinks we will have to pay the family deductible before insurance starts to pay. Is that true, or will it be the individual deductible?


Admin 30.01.2013. 02:28

It would be the individual deductible. The family 'max deductible' limits total out of pocket costs for the whole family.


Rumpa D 28.08.2008. 14:36

what is the responsibility of individuals in the cost of their care? what is the responsibility of individuals in the cost of their care? are health savings acconts and high deductible insurance policies and approach that should be expanded? what are the concerns for low-income individuals?

Rumpa D

Admin 28.08.2008. 14:36

Health insurance should be affordable because health care will never be affordable. I dislike the savings accounts. Low income families with children should be eligible for state sponsored programs as well as middle income families are often eligible for state sponsored reduced cost programs. Individuals should be responsible for their own care. I was without health insurance for 2 years. Just before I got a new job that offered insurance, I was going to get "Individual Blue" from Blue Cross Blue Shield- it was less than $90/mo for coverage. I think people can afford that and I was making $6.25/hr at that time and was going to purchase the $90/mo plan. People can afford the coverage they just want the government to foot the bill for as much as it possibly can.


AKA Dawn Desantis 26.07.2007. 16:25

What are the pros or cons of a Health Savings Account? Is an HSA better than regular health insurance? Is it really true that the company that I work for and me save money with HSAs?

AKA Dawn Desantis

Admin 26.07.2007. 16:25

A health savings account (HSA) is a savings vehicle established to set aside funds tax free to pay for health care expenses. HSAs, created as part of the Medicare Prescription Drug and Modernization Act of 2003, HSAs allow individuals who have high-deductible health plans (HDHPs) to save money for health-care expenses tax free. HSAs can be established by any qualified individual covered by an HDHP.

Who can establish an HSA?Generally, if you are covered under an HDHP, you are eligible to establish an HSA. In 2007, a qualifying HDHP health plan (1) has an annual deductible of at least $1,100 for individual coverage or $2,200 for family coverage, and (2) limits annual out-of-pocket expenses (e.g., co-pays, deductibles) to $5,500 for individual coverage and $11,000 for family coverage.

You will not be eligible to open an HSA, even if you are covered under an HDHP, if any of the following apply:

You are already covered under a non-HDHP, including a comprehensive major medical plan, a plan sponsored by your employer or your spouse's employer, or a prescription drug plan or rider with a low deductible or no deductible. (Some health plans are exempted from this provision, including dental or vision care insurance, long-term care insurance, disability insurance, and accident insurance.)
You can be claimed as a dependent on another person's income tax return.

You are entitled to Medicare coverage (i.e., you are age 65 or older), and have enrolled in Medicare.

o qualify as an HDHP, a plan offering family coverage must specify that no payment can be made from the plan for any individual (except for exempt preventative care benefits to which a deductible does not need to apply) until the family deductible is satisfied.

If your spouse has non-HDHP family coverage, but that plan does not cover you, you may still contribute to an HSA if you are otherwise eligible to do so. However, your spouse will not be eligible to contribute to an HSA.

An HSA is a tax-exempt trust or custodial account that can be established through any qualified trustee or custodian, including a bank, an insurance company, or a third-party administrator. In some cases, this may be the same institution offering the HDHP. You can open an HSA on your own or, if available, through your employer. Employers may offer HSAs as part of a cafeteria plan.

You, your eligible family members, or others who wish to do so can make contributions to your HSA. If you're employed, your employer may also make contributions to your HSA. Contributions may be made directly or through salary reduction under a cafeteria plan (if offered by your employer). However, no contributions can be made to your HSA once you retire.

Employers who make contributions to employee HSAs must generally make comparable contributions to the HSAs of all comparable participating employees (either the same percentage of the deductible amount or the same dollar amount). Otherwise, the employer must pay an excise tax equal to 35 percent of the actual contributions made. An employer, can, however, make larger HSA contributions for nonhighly compensated employees than for highly compensated employees without violating the comparability rule. In addition, the comparability rule is applied separately to part-time employees and does not apply to contributions made through a cafeteria plan. However, contributions to an HSA made under a cafeteria plan are subject to Section 125 nondiscrimination rules.

For 2007, you can contribute up to $2,850 for individual coverage, and $5,650 for family coverage, to your HSA. This annual limit is the sum of the limits determined separately for each month (i.e., the amount you can contribute in each month is computed by dividing the annual contribution limit by 12).

You can choose to make monthly contributions to your HSA, or you can make a lump-sum contribution any time before your tax return becomes due (i.e., for most individuals, by April 15th of the year following the year for which contributions are being made), as long as your contributions have already accrued.

What if you become eligible for an HSA after the beginning of the year? In this case, your maximum contribution for the year is the annual maximum dollar amount for the year, even though you weren't eligible for the entire year. However, you must remain in the HSA-eligible plan for the entire calendar year following the last month of the year in which you made that contribution. Otherwise, the contribution will be included in your gross income for the calendar year in which you ceased to be eligible, and will be subject to an additional 10 percent penalty tax.

You may also be eligible to make additional "catch-up contributions" to your HSA if you are 55 or older. For 2007, the catch-up contribution amount is $800. This amount is scheduled to increase by $100 each year until it reaches $1,000 in 2009. (If eligible, both you and your spouse can make separate catch-up contributions to an HSA.) However, no regular or catch-up contributions can be made once you reach age 65 and are enrolled in Medicare.

You may be ineligible to make contributions to an HSA if you are currently covered under a flexible spending account (FSA) or a health reimbursement arrangement (HRA) that duplicates coverage provided by the HSA. However, if you have an FSA or an HRA, you will be eligible to participate in an HSA if:

Your FSA or HRA is a limited purpose account that repays or reimburses only vision, dental, or preventative care expenses
Your FSA or HRA is a high-deductible arrangement (called a post-deductible arrangement by the IRS) that pays or reimburses health-care expenses only after the minimum annual HDHP deductible has been satisfiedYou suspend your HRA for a time by electing to forgo payment or reimbursement of HRA benefits incurred during the suspension period (your employer can continue to make contributions during the suspension)
Your HRA is a retirement HRA that only reimburses medical expenses you incur once you retire (though contributions can be made before you retire).

As the account owner, you can direct your contributions to a savings or investment option offered by the qualified trustee or custodian of your HSA. Any interest and investment earnings on contributions grow tax deferred until withdrawn, and like contributions, will be tax free when withdrawn if used to pay qualified medical expenses.

Individual contributions you make to your HSA that do not exceed the maximum contribution limit are tax deductible on your federal income tax return. Because you deduct these contributions "above-the-line" when computing your adjusted gross income, you can deduct HSA contributions even if you don't itemize. You can also deduct contributions made by a family member on your behalf.

If your employer makes contributions to your HSA, these are excludable from your gross income. Any contributions made through a cafeteria plan are treated as employer contributions. However, you cannot deduct employer contributions to your HSA.

You can withdraw money from your HSA for qualified medical expenses for yourself, your spouse, and your dependents. Distributions from an HSA for qualified medical expenses are not taxable. However, distributions for nonqualified expenses are considered taxable income and are subject to an additional 10 percent penalty.

The 10 percent penalty for nonqualified expenses does not apply if the distribution is made as a result of the beneficiary's death or disability or when the beneficiary reaches age 65.

Qualified medical expenses are health-care expenses, as defined by Internal Revenue Code 213(d), that are paid by you, your spouse, or your dependents. These include laboratory fees, prescription and nonprescription drugs, dental treatment, ambulance service, eyeglasses, and hearing aids, as well as many other health care expenses. HSA funds may also be used to cover health insurance deductibles and co-payments.

Generally, health insurance premiums, including HDHP premiums, are not qualified expenses, except for the following types of health coverage (1) COBRA coverage; (2) Qualified long-term care insurance (3) Health coverage maintained while receiving unemployment compensation and (4) Retiree health insurance other than a Medicare supplemental policy (Medigap).

The HSA trustee or employer is not responsible for ensuring that amounts distributed from an HSA are used for qualified medical expenses.

For a list of qualified medical expenses, see IRS Publication 502.

If eligible, you may roll over funds from your IRA to your HSA once during your lifetime. However, the amount you roll over can't exceed the annual HSA contribution limit for that year, and is reduced by any amount you've already contributed to your HSA for the year.

At the end of the year one of the advantages of HSAs is that unlike FSAs, HSAs do not have a "use it or lose it" provision. Funds remaining in your account at the end of the year are not forfeited and can continue to accumulate tax free year after year until withdrawn.

An HSA is portable. Because the account is yours, you can keep it and continue to make contributions even if you change employers or leave the workforce.

If you divorce
If all or part of your interest is transferred to your spouse as part of a divorce settlement, it will not be considered a taxable transfer, and the transferred interest will continue to be treated as an HSA.

If you retire
Although you can no longer open or make contributions to an HSA once you reach age 65 and are enrolled in Medicare, you can take tax-free distributions from your account to pay for medical expenses. You can withdraw funds from your account for nonmedical purposes without owing a penalty (although the amount you withdraw will be subject to income tax).

If you die
Funds remaining in your HSA upon your death become the property of your designated beneficiary. If the beneficiary is your spouse, he or she becomes the account holder and the account remains an HSA. If the beneficiary is not your spouse, the account ceases to be an HSA as of the day of your death, and the fair market value of the funds are includable in your beneficiary's gross income.


PrettyEskimo 24.03.2008. 23:56

Personal family health insurance with deductible $5000 or less? Trying to find a Health Insurance plan with a deductible of $5000 or less. Found a Blue Cross one for about $7500 but that's to much since I only make $15000 a year.


Admin 24.03.2008. 23:56

There are many plans available with deductibles of $5000 or less. Visit a local independent agent to find the best plan for your situation since plans and companies vary by location. Many individual plans will have doctor visits and prescriptions without having to meet the deductible first. Also, you may be interested in an HSA qualified plan where you can save some money in a savings account to help pay the deductible. Even if you have a higher deductible the hospitals will work with you to make the deductible payments.


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