Are you in the process of choosing a health insurance plan? You may be one of many people who have the option to select a high-deductible health plan, or HDHP. HDHPs have become increasingly popular over the past several years because they can potentially cost much less in monthly premiums than traditional plans, have potential tax advantages, and many employers offer them. But before you sign up for an HDHP, you want to make sure it meets your health care needs and your budget. In this article, we’ll help you:
- Understand what it is and how it works
- Weigh the pros and cons
- Decide if an HDHP makes sense for you
What is an HDHP and how does it work?
True to its name, a high-deductible health plan is a health insurance plan with a high deductible. What’s a deductible? It’s the amount you’ll pay out of pocket for covered medical expenses before your insurance pays anything. With HDHPs that can help make you eligible for the tax advantages of a health savings account, your deductible for 2021 and 2022 will be at least $1,400 for individuals and $2,800 for a family, according to IRS requirements. Once you have covered expenses that reach that annual deductible, your insurance starts paying for care. Keep in mind that after reaching your deductible, you will probably have a copay (a flat fee for visiting a provider or filling a prescription) or coinsurance (a percentage of medical costs you pay) amount that you owe for most covered services for the rest of the year.
Though HDHPs usually have higher deductibles than most PPOs or HMOs, they do come with an out-of-pocket maximum. This is the most you’ll pay in a year for covered services from in-network providers. For 2021, the maximum is $7,000 for a single person and $14,000 for a family — rising to $7,050 and $14,100 in 2022. Once you have covered expenses that reach this maximum, your plan will pay 100% of your expenses for in-network care for the rest of the year.
Many HDHPs do provide 100% coverage for preventive services in your network before you meet your deductible. These include procedures such as yearly physicals, vaccinations, colonoscopies, mammograms, and flu shots
Advantages of an HDHP
HDHPs are popular because they often have low monthly premiums, which is what you pay every month for your plan. Because the deductibles are high, monthly premiums are lower than similar health insurance plans that have a lower deductible. If you’re generally healthy and don’t have medical expenses beyond annual physicals and preventive screenings, an HDHP could save you several hundred dollars or more a year.
Another benefit of having an HDHP is that it can help make you eligible to contribute to a health savings account (HSA) . A health savings account is only an option for those who have an HSA-qualified HDHP — so if you want one, make sure your plan is eligible. Additional HSA eligibility rules are described in IRS Publication 969. HSAs allow you to put pre-tax earnings into an account you can tap into to pay qualified medical expenses, such as doctor visits, prescription drugs, and other medical services and supplies. You save on taxes since the money you put in and take out is either tax free or tax deductible. Because contributions to an HSA roll over year to year, you don’t lose the money if you don’t spend it right away.
Pros
- Lower monthly premiums
- Similar benefits as other plans once the deductible is met
- May help qualify you for a tax-advantaged health savings account (HSA)
Disadvantages of an HDHP
The main drawback to choosing an HDHP is having potentially high out-of-pocket expenses when you receive covered services during the year. You pay more in upfront costs (your deductible and copays and/or coinsurance) for nonpreventive care until you meet your yearly out-of-pocket maximum. For example, let’s say a routine doctor visit that’s covered by your HDHP leads to a diagnosis of a medical condition that needs expensive treatment. You’ll be responsible for the cost of that care up to your deductible, plus copay and/or coinsurance fees up to your out-of-pocket maximum. So, if you have a chronic condition and need to visit doctors often, an HDHP may not be the best option for you.
Another possible downside to HDHPs is that you may find yourself putting off doctor visits because you’re not used to having such high out-of-pocket costs when you use covered services. A 2019 survey found that about half of U.S. adults say they or a family member put off or skipped some sort of health care or dental care in the past year because of the cost.1 Avoiding doctor visits and prescriptions could lead to more serious health problems and larger medical bills down the road.
Cons
- Higher out-of-pocket costs when you receive covered services
- You pay for all your nonpreventive health care until you reach the high deductible
When an HDHP might make sense
A high-deductible health plan can make sense for you if:
- You’re healthy and rarely get sick or injured.
- You have no existing medical conditions.
- You can afford to pay the high deductible out of your pocket if an unexpected medical expense arises.
- You want to be eligible for the tax advantages of an HSA.
When an HDHP might not make sense
A plan with a lower deductible, such as a PPO or HMO that isn’t designed as an HDHP, might be a better choice than an HDHP if:
- You have a family with young children.
- You’re planning to have a baby soon.
- You have a chronic condition that needs ongoing treatment.
- You take several prescription medications, or just one pricey drug.
- You or your children engage in high-risk sports or hobbies.
- You can’t afford to pay a high deductible upfront before your health plan starts paying for nonpreventive services.
If an HDHP is right for you
Once you carefully weigh the pros and cons of a high-deductible health plan and decide it’s worthwhile, it’s time to shop around. Compare coverage options of HDHPs available in your area, including premiums, out-of-pocket costs, and provider networks to figure out which would work best for you.
If your employer doesn’t offer an HDHP option, or you don’t have coverage through an employer, you can shop for an HDHP plan on the health insurance exchange at HealthCare.gov. Many state-run exchanges also have options for HDHPs.
The bottom line
There’s a lot to consider when choosing health insurance , especially when it comes to high-deductible health plans. Whether an HDHP can save you money depends on the specific plans available to you and your expected medical expenses for the year. While HDHPs often have lower monthly premiums, your personal financial and health situation should determine the type of coverage that’s best for you and your family.
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Footnotes
1KFF, “Data Note: Americans’ Challenges with Health Care Costs,” June 11, 2019https://www.kff.org/health-costs/issue-brief/data-note-americans-challenges-health-care-costs/
