How to Choose Between an HDHP and a Traditional Health Plan
October 9, 2019
Your health plan drives many of your decisions during open enrollment. One emerging trend is employers offering their employees health plan options. Nearly two-thirds of large employers provide their employees with the choice of a High-Deductible Health Plan (HDHP) and a traditional health plan during open enrollment. Does your employer offer options? If so, here are four factors you should consider when choosing between the two plans.
You and your family’s expenses
During open enrollment, you may see tables or charts that show your available plans’ premiums, deductibles and/or out-of-pocket responsibility. Once you have those numbers, compare them with your family’s typical costs for expenses like doctor visits and prescriptions. That’s a critical first step when weighing your choice of an HDHP versus a traditional health plan (such as Preferred Provider Organization, or PPO).
If you don’t anticipate you (or your family) will require a lot of medical care in the coming year, it makes sense to participate in an HDHP so you can save money by paying less in premiums. Use our HDHP/HSA Vs. Traditional Health Plan Calculator, which lets you input your annual doctor visit and prescription expenses to see the plan that’s right for you.
Pre-tax benefits savings
Premiums aren’t the only way you can save on healthcare costs. Pre-tax employee benefits plans, such as Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs), let you save money by putting aside pre-tax dollars to pay for eligible medical, dental, vision and other expenses. However, to take advantage of the savings and investment potential of an HSA, you must be enrolled in an HDHP. And, if you have an HDHP and an HSA, you can pair both with a Limited FSA (which covers dental, vision and preventive-care expenses) for even more savings!
Who isn’t interested in free money? Many employers contribute to their employees’ HSAs, which often is an annual contribution or a match of their employees’ contributions. In 2018, the average employer contribution to employee HSAs was $839, which was a 39 percent increase from the previous year. These contributions will help you cover the cost of a higher deductible when you do choose an HDHP and an HSA.
Healthcare costs are the biggest reason that household expenses increase during the first six years of retirement. The average 65-year-old is now expected to need around $200,000 just for medical care in retirement. If you feel an HDHP is right for you, then an HSA can be part of your retirement-planning strategy for many reasons, including:
- All HSA funds carry over from year to year, so unspent funds will be there for you later in life.
- The investment capability of these accounts rivals a 401(k) or an IRA, allowing you to grow your funds even faster than you would simply through interest.
- Once you turn 65, HSA funds can be spent on ineligible expenses without being subject to a 20 percent tax penalty (although these purchases on ineligible expenses will still be taxed).
Are you determining whether an HDHP or traditional health plan is right for you? Use our HDHP Vs. Traditional Health Plan Calculator today!
Please note: Discovery Benefits cannot provide investment advice and encourages its participants to seek guidance from a financial adviser for help with investment decisions.