HDHP: High Deductible Health Plan

High Deductible Health Plan (HDHP) is the modern version of what my family of origin used to call major medical. Forty years ago, major medical was code for "your unemployed brother is gambling on his health so we're paying the premium for major medical." It wasn't particularly good insurance unless you landed in the hospital with a serious disease, something not likely to happen to young men, anyway.

In today's vernacular, that type of insurance is more likely to be called a catastrophic policy—no routine medical expenses, but hospitalization covered after a deductible. (And today, major medical is more likely to be spelled out as comprehensive major medical with more coverage than the cheap plans of old.)

The HDHP of today reminds me of the old major medical but the HDHP insurance coverage is actually very broad. It just doesn't kick in until after you've spent a hefty deductible out of pocket. That's the trade-off: low premiums provide coverage but you won't get the coverage until you've spent thousands of dollars per year.

One advantage of HDHP is the ability to set up an HSA or Health Savings Account. The IRS calls that a "tax-favored" account, meaning that you (and even an employer if you have one) can save money in a special account tax-free if it's reserved for qualified health expenses.

Before you raise your eyebrows (as I did), understand that the HSA is different from the "flexible spending account" that you may have had through an employer. Those spending accounts were the tax-advantaged accounts that made you sometimes forfeit whatever was in the account at the end of the year. Money in the HSA (savings) rolls over, year to year, tax free. You never lose the money and if you spend it according to the rules, it and any interest earned remains tax free.

It's at this stage that I need to simply provide the links for your own reading. Why should you read these things? Because even though HDHPs are not wholly admired (some experts fear that HDHP-holders will not have appropriate access to health care when they need it, if only through their own reluctance to pay out of pocket), these plans are a strategy that some employers will turn to when the insurance squeeze turns into an insurance freeze.

HDHP - information from NY Times

Health Savings Accounts and OtherTax-Favored Health Plans - HSA information from the IRS

Glossary of health care terms - courtesy of Aetna

© 2009 Mary Bold, PhD, CFLE. The content of this blog or related web sites created by Mary Bold (www.marybold.com, www.boldproductions.com, College Intern Blog) is not under any circumstances to be regarded as professional, legal, financial, or medical advice. Or education advice. Or marital advice. Or even a tip.