What to know about high-deductible health plans
Before taking out an HDHP, consider your healthcare needs and try to predict how likely you are to need medical care and treatment during the duration of your plan.
They can work well for you if you are confident you will not need medical care, as you’ll pay nothing more than your premium costs. However, if you have to spend a couple of nights in the hospital, it can quickly become very expensive.
A deductible is the amount you pay out-of-pocket for all insurance plan-eligible medical expenses before an insurance company covers costs. This is typically a combination of copayments, coinsurance, and other qualifying costs.
Some plans may define eligible expenses as those you received within the insurer’s network of approved healthcare providers. It could mean higher costs if you seek care from an out-of-network healthcare facility or professional.
For 2024, the Internal Revenue Service (IRS) defines an HDHP as a plan that has a minimum individual deductible of $1,600 and a minimum family deductible of $3,200. According to the Kaiser Family Foundation (KFF), the annual 2023 out-of-pocket average for single coverage is $5,456, and family coverage is $6,080.
Who might benefit from an HDHP?
HDHPs may suit some people better than others. If you generally have good health, no preexisting health conditions, and do not have regular injuries, these plans may suit you very well.
Your premiums are likely to be low, but you may still enjoy some fully covered preventive benefits, like mammograms, blood pressure checks, and mental health screenings.
If you have preexisting medical conditions or feel you may require medical care, you may benefit by considering other health plans that can make your long-term costs more manageable.
HDHP pros and cons
There are some HDHP pros and cons to consider. See the table below for details.
|Low monthly premiums: Higher out-of-pocket costs mean saving you money on premiums. You could benefit from an HDHP if you have a healthcare plan you don’t use.
|Limited coverage: Until you have met your deductible, you may have to pay out-of-pocket for all eligible care you receive from an in- or out-of-network medical professional or provider.
|Some fully covered benefits: The plans often have fully covered benefits, like preventive care, quit-smoking programs, and more.
|Discouraging care: Sometimes, to avoid high healthcare costs, HDHPs can discourage people from visiting doctors and healthcare professionals to receive the care they need. This may result in delayed treatment.
|Using a Health Savings Account (HSA): If you have an HSA, you will already have some funds set aside for medical costs, and typically, HDHPs work alongside HSAs.
|Delayed diagnosis and medications: To save costs, some people may not seek or receive a diagnosis for a chronic or long-term health condition. This may also include not getting the correct medications to treat health conditions.
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Adding an HSA to an HDHP
An HSA is a tax-free account that’s available to people with HDHPs. The account allows you to set money aside for future qualified medical expenses and is a great way to save for any emergency care that may arise.
If you have an HDHP, an HSA is a good way to reduce the risk of experiencing high medical costs. For example, you may choose to put some of the money you save on premiums into your HSA each month.
For 2023, if you have a single HDHP, you can contribute a maximum of $3,850. If you have a family HDHP, you can contribute up to $7,750. These include deductibles, copays, coinsurance, and prescriptions.
HSA funds roll over from year to year, and they continue earning tax-free interest, so you do not have to spend the money in a specific timeframe.
Many people don’t take advantage of HSAs, with around 1 in 3 adults enrolled in an HDHP not using one. If you have an HDHP, you might consider this option to ensure the best health outcomes for yourself and your family.
HDHPs may not suit everyone, but if you and your family are in good health and have little risk of injury or hospitalization, an HDHP may work well.
These plans can work even better alongside an HSA, which gives you a tax-free savings pot for eligible healthcare expenses.
There is an element of chance with HDHPs, as you will need to decide whether your circumstances could allow you to avoid extremely high cost medical costs, like hospital stays. This means that you will enjoy lower premium costs.
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- 2023 health benefits survey. (2023). https://www.kff.org/report-section/ehbs-2023-section-8-high-deductible-health-plans-with-savings-option/
- Health savings accounts and other tax-favored health plans. (2022). https://www.irs.gov/pub/irs-pdf/p969.pdf
- Health savings accounts (HSAs). (n.d.). https://www.healthcare.gov/glossary/health-savings-account-hsa/
- Kullgren JT, et al. (2020). Use of health savings accounts among US adults enrolled in high-deductible health plans. https://jamanetwork.com/journals/jamanetworkopen/fullarticle/2768350
- Part III administrative, procedural, and miscellaneous. 26 CFR 601.602: Tax forms and instructions. (2023). https://www.irs.gov/pub/irs-drop/rp-23-23.pdf