Qualified High Deductible Health Plan

Of the many health care insurance options available to US citizens, an important alternative is a qualified High Deductible Health Plan (HDHP), which provides eligibility to open a health savings account (HSA). Through the Medicare Modernization Act passed by the Bush administration in 2003, health savings accounts were created to help low income groups save money for medical expenses, free of tax. An important eligibility condition for opening a HSA is the requirement that the individual has a high deductible health plan, which has contributed to the increase in their popularity as health insurance plans.

There are a range of health insurance schemes out there to choose from. The prime features that vary among these range of insurance plans are coverage offered, yearly premium amount offered and the deductible amount. Before I present the 2011 IRS rules regarding what constitutes qualified HDHP, let me explain the basic features of this insurance product.

What is a Qualified High Deductible Health Plan?

As its name itself clarifies, a HDHP is a health insurance plan marked by high deductible values. Now those of you who are new to insurance terminology may wonder may need an explanation about what are deductibles. So here is a simple explanation. The deductible amount is the maximum amount of medical you pay out of your own pocket, after which the insurance company starts paying. As the name itself suggests, HDHPs are health insurance plans with high deductible amounts. You could say that deductible amount and the premium amounts are inversely related. Lower the deductible, higher is the premium and inversely, higher the deductible, lower is the premium you need to pay every year.

That is the USP of high deductible health plans. They have substantially lower premiums, compared to other health insurance plans. Another one of its USPs is the fact that they provide eligibility to an individual, to start their own health savings accounts. An HSA lets you save money tax free for medical expenses. There is an upper constraint on how much you can deposit in an HSA every year, that is decided by the IRS.

Features

According to the latest updates issued by the IRS any HDHP, to be a qualified HDHP, has to meet certain requirements. Here are the high deductible health plan rules. The constraints imposed by the IRS are with reference to the minimum and maximum annual deductible amounts plus out of pocket expenses. In 2011, a qualified HDHP may have a minimum deductible amount of $1,200 for self only coverage, while a family coverage plan may have a minimum deductible of $2,400.

The maximum limit on annual deductibles plus out of pocket expenses should not exceed $5,950 for a self only coverage plan. On the other hand the maximum deductible plus out of pocket expenses amount for family coverage is $11,900 in 2011. For more details regarding qualified HDHPs, I suggest that you check out 'Publication 969', issued by the IRS. The con of having an HDHP is the higher deductible, which is balanced out by the fact that you have a health savings account to bank upon, to pay for the medical expenses.

The requirements demanded by the IRS are the main points to be taken away from this write up. Opting for a HDHP is a smart decision, as it substantially brings down premium costs. For individuals with very low health risks, it is an ideal option. Make sure that the HDHP plan you opt for, with the intention of opening a HSA account meets all the conditions declared by the IRS.