Not many of us enjoy paying exorbitant health insurance premiums. Sure, health insurance is a very important product to own, but prices are getting to the point where many of us can’t afford them. So, what’s the solution? How do you stay covered without destroying your budget?

One of the most popular ways is to trade your expensive, comprehensive health insurance plan for a catastrophic, or high deductible health plan (HDHP).

So what’s the difference?

Comprehensive health plans have been around for decades. They’ve provided great coverage and the prices weren’t bad either (last millennium). It’s no secret that insurance companies are trying to keep up with inflation in the medical industry by raising health insurance prices by 8% to 12% per year. In addition to that, they are chiseling away at benefits to make their plans more cost-effective and in turn, competitive. Doctors office benefits are melting away, prescription deductibles are being added to plans, and more and more medical services are being covered only after the insured meets their annual medical deductible.

The high deductible health plans that are popular today came on the scene in 2003, as a result of actions by the Bush administration. These plans accomplish two separate but equally important goals. Because they carry a higher deductible than most comprehensive plans, and they don’t cover most medical services until after the annual deductible has been met, they cost much less than plans with traditional-type benefits.

In addition, owning this type of plan allows the insured to open a health savings account, or HSA. HSA’s allow the account holder to make pre-tax deposits into their account and use the balance to pay for medical expenses that are considered “qualified” by the IRS. Essentially, any medical expense that’s considered “qualified” can be paid for completely tax free.
According to AHIP, a national political advocacy group, HDHP’s are becoming more popular. Approximately two million new American’s are making the move to an HDHP each year (since 2008).

Who should switch to a high deductible health plan, and who shouldn’t?

High deductible health plans are typically a good solution for people who don’t have chronic health conditions, expensive medications, and don’t over-utilize their health insurance benefits. Because the insured is on the hook for a larger dollar amount of their own medical expenses, if a medical event does occur, they’ll pay more than they would on a comprehensive plan. It’s prudent to consider your claims history over the last few years before switching over to a plan with a higher deductible.

Between considering past medical expenses, current health conditions, existing medication costs, and the value of new tax deductions, you should be able to make a determination as to whether or not this solution is right for you.

People who have pre-existing health conditions, use their benefits often, fill expensive prescriptions, and/or don’t have much need for new tax deductions will want to consider sticking with a health plan that has a lower medical deductible, office visit and prescription coverage, and pays for more benefits up front. For someone who uses their benefits often, this type of plan could turn out to be a curse, rather than a blessing.
Explore this solution. It may be right for you.

It takes some thought to determine whether or not this is the right solution to high health insurance costs for you or your family. Ask a trusted insurance or financial advisor for their thoughts on your situation. If you know someone who has made the move to a high deductible health plan, ask them what their experience has been.

One thing is for sure. The American healthcare system is getting more and more expensive. Costs will continue to increase, even in the midst of healthcare reform. The American insurance market is already on the path to offering more high deductible and catastrophic-oriented health plans. Step ahead of the crowd and consider a high deductible health plan as a solution to high cost, comprehensive health insurance.

Jared J. Balis is a life and health insurance agent in the state of Utah. In addition to spending time with his family, photographing lightning, and drinking coffee, Jared also runs, a blog with new and fresh ideas on insurance.

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