Navigating health insurance can be like learning a foreign language. When you are not immersed in the terminology on a day-to-day basis, the words describing your coverage can prove to be confusing at best. I am hopeful that a few basic explanations can help you journey to understanding your coverage just a little bit better.
Let’s start with the most common plan styles. The first is often referred to as a traditional health plan or copay plan. These types of plans have a set flat dollar copayment when you use basic services such as seeing your primary care doctor, a specialist, urgent care, and prescription medication. These types of plans have been around for a long time. They are frequently the plans people think of first and often more comfortable with.
The second plan style and one that becomes more and more common with each passing year is the high deductible health plan (HDHP) or HSA (Health Savings Account) eligible plan. These plans, like their name describes, have high deductibles. The deductible is the amount you are responsible to pay before the insurance company starts to pay. The IRS sets the limits of HDHP plans each year.
The major difference in a copay plan and a HDHP is that in a true HDHP plan EVERYTHING except preventive care and some basic preventive medications will apply to your deductible first. There is no copay when you go to the doctor. The visit will cost you the full contracted rate of your insurance network and apply to your deductible. Additionally, the full cost of your prescription medication will apply to your deductible as well. While I know that can sound intimidating, the HDHP plans save significant premium dollars which in turn allows you to set up the health savings account.
Health savings accounts are exactly what they sound like. They are a savings account owned by you that you can put money in, often on a pre-tax basis. Money in that account can be used to pay for your out-of-pocket medical expenses, as well as dental and vision expenses if they are not cosmetic in nature. For a full list of eligible expenses and limitations please refer to the IRS website. Health Savings accounts are usually maintained through a financial institution of your or your employer’s choosing and is entirely separate from the medical insurance. Those accounts are yours to keep. They are not a use it or lose it benefit. Health Savings Accounts are the ONLY financial vehicle with triple tax benefits. They allow you to put money in tax free, use the money tax free, and investment earnings within the account are tax free. Many people choose to fund those accounts to the maximum allowable by the IRS on an annual basis and use the accounts for a secondary retirement account. After age 65 the funds in those accounts can be used for ineligible expenses and you will not face a tax penalty, only normal income taxes are due for those withdrawals.
While this only scratches the surface of understanding your medical benefits, I’m hopeful this helped bring some clarity as you navigate your healthcare journey.