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High-Deductible Health Insurance (Consumer Directed Plans, HDHP)


Definition of High Deductible Health Insurance: As indicated by the name, high-deductible health insurance is a health insurance policy with a high deductible (amount you pay each year before the insurance comany starts to pay.) These types of health insurance policies are also known as Catastrophic Health Insurance and Consumer Directed Plans.

People who benefit from a high-deductible health insurance policy: Common wisdom is that high-deductible health insurance policies are good for young people with few medical bills and not for people who require ongoing medical care. However, high-deductible health insurance policies can also be good for people who require ongoing medical care. For example:

  • If you participate in a tax advantage health savings account, medical expenses in the deductible are paid for by pre-tax dollars. Without such a savings plan, there is no tax benefit for medical expenses until you reach a threshold of medical expenses. (The threshold for the itemized deduction for unreimbursed medical expenses is 10% of the taxpayer’s Adjusted Gross Income (AGI). However, in the years 2013–2016, if either the taxpayer or the taxpayer’s spouse has turned 65 before the close of the tax year, the threshold is 7.5% of AGI. In 2017 the 10% threshold will apply to all taxpayers.) Even then, expenses below the threshold are not deductible. 
  • Even without a tax advantage health savings account, a high-deductible health insurance policy can be useful for people who have substantial assets who are only concerned about protecting against catastrophic medical costs.

If you have a lower income:  High-deductible health insurance can be a problem for people with a lower income who cannot afford the out-of-pocket expenses included in the deductible. Small health problems which are not treated can become large health problems. Also, the tax breaks which come with a tax advantaged health savings account are less meaningful to a person with a lower income.

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