Whether you're still evaluating your options for medical coverage, or you're already covered by a conventional health care plan through an HMO or PPO, you should be aware of a fairly new option for health insurance called a High Deductible Health Plan (HDHP).

Started in 2003 as an alternative to the plans offered by HMOs and PPOs that promise low deductibles but charge high premiums, a High Deductible Health Plan (HDHP) with a Health Savings Account (HSA) or a Health Reimbursement Arrangement (HRA) provides traditional medical coverage and a tax free way in which to build funds to cover future medical expenses.

When you choose a High Deductible Health Plan, your income level determines whether you are eligible for an HSA or an HRA. If you are enrolled in Medicare, you are not eligible for an HSA. The HDHP with HSA or HRA gives you greater flexibility in how you use your health care benefits. You can pay your deductible with funds from your HSA or HRA. If you have an HSA, you can also choose to pay your deductible out-of-pocket, allowing your savings account to grow.

High Deductible Health Plans: The Benefits

As with all health care plans, there are benefits and potential drawbacks to having an HDHP. Some of the advantages include:

• Once you sign up for an HDHP, you may be eligible for a Health Savings Account in which the money you deposit, accrue on interest, and withdraw for health-related expenses is tax-free
• Tax-free withdrawals from the supplementary Health Savings Account may be used to pay for out-of-network providers at any time, without prior approval from your insurance carrier
• Unlike a traditional Medical Savings Account (MSA), the balance in your HSA is portable and
• After you turn 65, the balance of your HSA may be withdrawn, tax-free, for any reason

High Deductible Health Plans: The Drawbacks

But there are a few disadvantages that you should be aware of when deciding between an HDHP, HMO, and PPO for your health care needs. Here are some of the drawbacks:

• Before age 65, withdrawals from your HDHP's Health Savings Account that are not applied toward medical expenses are not tax-free; instead, that sum must be added to your gross annual income, where it will generate an additional 10% tax
• A minimum of $1,100 in annual deductibles for Self Coverage, or $2,200 for Self and Family Coverage
• Although anyone can sign up for an HDHP, you must meet eligibility requirements to qualify for the supplementary Health Savings Account

Is a Health Plan with High Deductibles Right for Me?

An HDHP with an HRA or HSA may be an attractive option if you are looking for a tax-free way to save money for future medical expenses, or if you wish for greater flexibility with the way you use your medical benefits. By signing up for an HPHD, you can expect to pay less money per month, while retaining control over which doctors you see and accumulating the benefits you don't use in an HSA.

Request a health insurance quote and speak with a licensed agent who can provide you with information, answer your health insurance related questions and help you determine which kind of health coverage is best for you.