What to Consider With a Limited Benefit Health Insurance Plan
Limited Benefit Health Insurance Plans which may identify themselves as Short Term Limited Duration Insurance, Fixed Indemnity Plans, Specific Disease Plans, Indemnification Plans (i.e., Cancer Policy, Heart Policy, Accident Policy), Discounted Pharmacy or Dental Plans.
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:
- Consider the current or future medical needs you or your family may have.
- Decide which medical expenses you may need covered by a limited benefit policy and which you can pay for out-of-pocket.
- Are there annual and/or lifetime benefit limits?
- Most importantly, does it cover pre-existing conditions and/or ask health questions on the application?
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.
What To Consider With Other Health Plan Options
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:
- 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.
- 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.
