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How to Save Money with High Deductible Health Insurance

Learn how to cut your health insurance costs and keep your finances healthy without sacrificing quality care.

By
Laura Adams, MBA
November 9, 2011
Episode #242

Page 1 of 3

Life is unpredictable—that’s why you need the right kinds of insurance to stay safe from unforeseen expenses. One insurance product you should never go without is health insurance. Accidents, emergencies, and illnesses can easily derail your financial goals and dreams if you don’t have health coverage to fall back on. I’ll tell you how a high deductible health plan can save you money so you and your finances stay healthy.

What is a High Deductible Health Plan?

A high deductible health plan (HDHP) is an insurance policy with a higher annual deductible than a typical health policy. A deductible is the amount you have to pay out of pocket each year for covered services and expenses, before your insurance kicks in and pays them for you.

For 2011, to be considered a high deductible health plan, a policy deductible must be between $1,200 and $5,950 if it covers just one person. For family policies, the deductible can be twice that amount, from $2,400 up to $11,900.

Advantages of a High Deductible Health Plan

In exchange for having higher potential out-of-pocket expenses, one benefit you get from choosing a high deductible health plan is paying substantially lower premiums. In other words, the insurance costs less because it doesn’t start paying your medical bills until you’ve met a higher annual deductible.  

However, high deductible plans usually provide preventative care benefits—like annual physicals, well-child care, screening services, and immunizations—regardless of the deductible amount. That means they’re automatically covered for you, even if you haven’t met your annual deductible. So having a higher deductible doesn’t necessarily mean that you have to skip important checkups if your budget is tight.

What is a Health Saving Account?

In exchange for having a higher deductible, one benefit you get from choosing a high deductible health plan is paying substantially lower premiums.

Another huge benefit of having a high deductible health plan is that you qualify to open up and fund a special type of savings account that you can use to pay for healthcare expenses on a tax free basis. It’s called a Health Savings Account (HSA) and you can get one through work or find one on your own at sites like HSAbank.com and depositaccounts.com.

The funds you deposit in a HSA are never taxed as long as they’re used to pay for qualified medical expenses, like deductibles, prescription drugs, dental visits, and eyeglasses. Additionally, any earnings in a HSA are also yours to spend on healthcare tax free!

Think about this: If you spend about $4,000 a year on healthcare and pay an average tax rate of 25%, simply funneling your medical purchases through an HSA saves you $1,000 in taxes each year—that’s nothing to sneeze at!

Check out the long list of qualified medical costs you can pay for using an HSA in IRS Publication 502, Medical and Dental Expenses.

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