HDHPs: How Do They Work?
There are many options to consider when shopping for a health plan during open enrollment. One plan design to explore is a high-deductible health plan (HDHP). For consumers familiar with traditional health plans, HDHPs may seem overly complex or difficult to use. Understanding how HDHPs work can help determine if an HDHP is the right choice.
Understanding the Terms
Start by understanding some common health plan terms.
A member’s out-of-pocket expenses for deductibles, copayments, and coinsurance count toward the annual out-of-pocket maximum. Monthly premiums do not count toward out-of-pocket maximums. Once a member reaches their out-of-pocket maximum, the health plan pays 100 percent of all covered charges for the remainder of the year. The IRS sets out-of-pocket maximum requirements for HDHPs every year.
The amount a member must pay each year for certain covered services before the health plan will pay is called the deductible. There are three types of deductibles: Individual/self-only, Individual family member, and Family*. The IRS sets minimum deductible requirements for HDHPs every year.
A premium is the dollar amount due to a member’s health plan each month for healthcare coverage. For group coverage, employers pay part of the premium and members pay the rest, often in the form of payroll deduction.
For more details about healthcare terms, see our glossary.
How HDHPs Work
HDHPs typically have a lower premium and a higher deductible than many traditional HMO plans. Until a member meets the deductible, a member will pay 100 percent of the cost (except preventive care) for most of the services they receive. Once deductibles are met, all services are covered at the applicable cost-share amount until the out-of-pocket maximum is met. Once a member meets their out-of-pocket maximum, the member will not pay any further cost sharing for covered services for the remainder of the year.
For example, if a member enrolled in an HDHP hasn’t met their deductible and goes to a Sutter Walk-In Care for a standard visit, the member will pay the full cost of the visit and it will be applied toward their annual deductible. This may make it seem like services are more expensive, yet often times an HDHP can save consumers healthcare dollars because the monthly premiums are typically much lower.
HDHPs can be combined with a health savings account (HSA) that allows a member to pay for certain medical expenses with tax-free money. The tax savings from an HSA may lead to a lower overall cost for care. All Sutter Health Plus HDHPs are HSA-compatible. If you are thinking about opening an HSA, you must do so with a qualified financial institution and we recommend that you seek professional guidance from a tax professional or financial planner.
It can be a challenge for HDHP members to predict out-of-pocket costs for healthcare, and understand what services cost before their deductible is met. To help consumers forecast costs, and select the right plan for their needs, Sutter Health Plus provides an Estimated Cost for Services guide. This guide lists the cost for dozens of common and routine services provided by a physician at Palo Alto Medical Foundation, Sutter Gould Medical Foundation, Sutter Pacific Medical Foundation, Sutter East Bay Medical Foundation or Sutter Medical Foundation. Costs for similar services provided at a hospital or by a physician from a different medical group or an Independent Physician Association may vary.
With open enrollment happening now for many consumers, it’s important to see if an HDHP can offer overall healthcare cost savings. To learn more, speak with your employer or contact a health insurance broker.
*There are three types of annual deductibles with an HDHP. All annual deductibles apply toward the annual out-of-pocket maximum.
- Individual/self-only: An individual who enrolls by themselves must reach the individual deductible.
- Individual family member: An individual within a family must contribute to the individual family member deductible, which is equal to or greater than the IRS minimum for an individual within a family, until the individual family member deductible is met or the entire family deductible is met, whichever comes first.
- Family: Individual family member deductibles contribute to the family deductible. This deductible is met when any combination of the family members’ out-of-pocket cost for covered services equals the family deductible. Once the family deductible is met, no individuals within the family are required to contribute further to the deductible, even if they haven’t met the individual family member deductible amount.