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Limited benefit health insurance plans are not replacements for comprehensive health insurance coverage. If you lost coverage under a comprehensive plan and are considering a limited benefit plan, there are several things you should have in mind when reviewing the coverages offered by a plan:
Before deciding if a limited benefit health insurance plan is right for you, carefully consider if the plan meets your current and future needs. Know the limitations of the coverage and understand the expenses that will and will not be covered under the policy. Also, ask your agent if there are any exclusions or limitations specifically spelled out in the policy, so expenses that fall within the coverage gaps do not surprise you.
High Deductible Health Plans
Another health plan option is a “high deductible health plan” (HDHP). HDHPs provide the same types of coverages as a comprehensive health insurance plan, but only cover catastrophic health care costs. This means you will be responsible for paying much more of the upfront cost before the policy would pay any benefits for eligible medical expenses. HDHPs have a lower premium to compensate for the higher out-of-pocket costs incurred with these high deductibles.
There are two types of HDHPs:
1) Plans qualified by the U.S. Internal Revenue Service (IRS) to be used with a Health Savings Account (HSA). These plans must meet minimum deductible amounts and maximum out-of-pocket limits.
• For 2010, the maximum annual HSA contribution for an eligible individual with self-only coverage is $3,050. For family coverage, the maximum annual HSA contribution is $6,150.
• For 2010, the maximum annual out-of-pocket amount for HDHP self-coverage is $5,950 and the maximum annual out-of-pocket amount for HDHP family coverage is $11,900.
• For 2010, the minimum deductible for HDHPs is $1,200 for self-only coverage and $2,400 for family coverage.
2) Plans not qualified by the IRS to be used with a HSA. These plans can have much higher deductibles because they exceed the maximum out-of-pocket limits.
Health Savings Accounts (HSA)
An HSA is a savings account that allows you to set aside funds for future qualified medical expenses. An insured enrolling in a HDHP with an HSA can deposit funds for health care expenses on a pre-tax basis into the account. Earnings on HSA balances are also not taxable. Withdrawals of HSA funds to pay for eligible health care expenses are exempt from federal and state taxes as well. Unused funds in an HSA at the end of a year can roll over into the next calendar year.
What to Consider With a High Deductible Health Plan
If you’re considering either type of HDHP, make sure to read the policy form—paying careful attention to the benefits and the limitations of the plan. Review the implications of having a high deductible. For instance, will you have the funds available to pay a large deductible or high medical expense in the event of an unexpected illness? Also, consider whether the tax-saving advantages of an HSA are appropriate for your particular financial situation and contact a tax consultant if you have questions.