High Deductible Health Plan Rules

It is essential that one chooses a health care plan, which sufficiently covers his or her health care needs. Thanks to a competitive insurance sector, there are many choices at hand, when choosing a new health care plan. Since the creation of 'Health Savings Accounts' by an act passed by the Bush administration, there is a renewed interest in High Deductible Health Plans (HDHPs).

About HDHP

The health care sector is going through a phase of rapid change and the creation of health savings account is a significant change in this regard, which has substantially affected the choice of health insurance plans. Deductible amount is the maximum amount of out of pocket expenses, that an insured person must pay on his own, after which the insurance coverage actually comes into the picture.

High deductible health plans have a comparatively high deductible specification along with a low amount of premiums. This makes it an affordable health insurance scheme, with some more added benefits, which includes the eligibility that it grants for opening a dedicated health savings account for self or family.

One of the obvious pros of opting for a HDHP is the low amount of premiums and a major con is the higher amount of out of pocket expenses which the insured must bear. However, these expenses can be supported by the tax free money that can be saved in a health savings account (HSA). Let us take a look at the HDHP rules declared by the IRS in relation to their connection with HSAs.

Rules Pertaining High Deductible Health Plans

A health savings account allows you to save money tax free, just like an individual retirement account (IRA). The only condition is that you can use the money, only for medical expenses. Just like an IRA, there is a limit on how much you can deposit in HSAs. Let us now see what are the rules declared by the IRS regarding the HDHPs which make you eligible for a health savings account.

According to recent updates, for the year 2011, $1200 is the minimum annual deductible limit and $5,950 is the maximum out of the pocket expense plus maximum annual deductible limit for a self only HDHP plan.

$2,400 is the minimum deductible and $11,900 is the maximum annual deductible plus out of the pocket expenses limit for family coverage HDHPs. These are the only two HDHP rules that you need to know about. Other than that, there are several guidelines on the nature of a HDHP, which you read about in the IRS publication 969.

Opting for a HDHP is a kind of a gamble as it has its advantages and disadvantages. While it lessens the premium amount, it also raises your out-of-the-pocket expenses. Of course, the money saved in HSAs can be banked upon, but if the scale of health care spending is high, the gamble may not work for you. My advice is to think the whole thing through carefully, before opting for a HDHP. It is the best choice to go for, if your health care spending is low and you want to take advantage of the tax free money stored in a health savings account.