What is a High-Deductible Health Plan and How Does It Work (2024)

FAQs

What is a High-Deductible Health Plan and How Does It Work? ›

A plan with a higher deductible than a traditional insurance plan. The monthly premium is usually lower, but you pay more health care costs yourself before the insurance company starts to pay its share (also called your deductible).

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.

Lower Monthly Premiums

This makes high-deductible health plans the perfect choice for people who are generally healthy and don't require much medical attention. With lower premiums, you can save money and ensure you're covered in case of unexpected medical expenses.

But why would a plan with a high deductible be a good choice? If you're enrolled in a plan with a higher deductible, preventive care services (like annual checkups and screenings) are typically covered without you having to pay the deductible first. And a higher deductible also means you pay lower monthly premiums.

High deductible health plans—often referred to as HDHPs—have to follow three rules: The deductible has to be at least a certain amount, established each year by the IRS. For 2024, the minimum deductible is $1,600 for a single person, and $3,200 for a family.

If you're in good health, rarely need prescription drugs, and don't expect to incur significant medical expenses in the coming year, you might consider an HDHP. In trade for lower premiums, HDHPs require you to meet your deductible before you get any coverage for treatment other than preventive care.

If you have few needs, go with the HDHP. However, if you visit a doctor's office regularly, see specialists, and take several medications, a PPO without a high-deductible might be the better choice.

Copays do not count toward your deductible. This means that once you reach your deductible, you will still have copays. Your copays end only when you have reached your out-of-pocket maximum.

Plans fully cover routine preventive care, which means that individuals aren't responsible for copays or coinsurance. The minimum deductible varies from year to year. For 2022, the IRS defines an HDHP as one with a deductible of at least $1,400 for individuals and $2,800 for families.

Those who are older, those who are high-risk or those who have ongoing medical problems may benefit from a no-deductible plan because the insurer will immediately start paying for covered medical services.

Is it better to have a higher deductible or out-of-pocket maximum? ›

A health insurance deductible is more likely to play a role in your healthcare costs than an out-of-pocket maximum unless you need many healthcare services in a year. An out-of-pocket maximum is a safety net to save you from paying endless healthcare bills.

The general rule is that if your policy comes with a high deductible, you'll pay lower premiums every month or year because you're responsible for more costs before coverage starts. On the other hand, higher premiums usually mean lower deductibles. In these cases, the insurance plan kicks in much quicker.

Medicare doesn't typically cover 100% of your medical costs. Like most health insurance, Medicare generally comes with out-of-pocket costs including copayments, coinsurance, and deductibles. As you'll learn in this article, Original Medicare (Part A and Part B) costs can really add up.

The cons of high-deductible health plans

Yes, HDHPs keep your monthly payments low. But there are some downsides you should consider, including: Large medical expenses: Since HDHPs generally only cover preventive care, an accident or emergency could result in very high out-of-pocket costs.

High-deductible health plans usually carry lower premiums but require more out-of-pocket spending before insurance starts paying for care. Meanwhile, health insurance plans with lower deductibles offer more predictable costs and often more generous coverage, but they usually come with higher premiums.

Out-of-pocket limits are higher in an HDHP. For 2024, those limits are $8,050 for an individual plan, and $16,100 for a family plan. For 2025, those limits are $8,300 for an individual plan, and $16,600 for a family plan. Will vary by plan and by employer, but are typically lower.

A high deductible healthcare plan has premiums that are significantly lower than those offered by traditional plans such as PPOs. These savings are one of the most commonly cited reasons for choosing a high deductible healthcare plan.

Policies with lower deductibles typically have higher premiums, meaning you'll pay more each month for your insurance coverage. However, if you have a higher deductible, you may be able to save money on your premiums but may be responsible for paying more out of pocket if you need to file a claim.

High-deductible plans would be particularly problematic for lower-income Americans: a predicted 44 percent of people with incomes below $35,000 and with a deductible of $500 or more would experience cost-related access problems, compared with 21 percent of higher-income, insured adults with deductibles under $500.

A plan with a higher deductible than a traditional insurance plan. The monthly premium is usually lower, but you pay more health care costs yourself before the insurance company starts to pay its share (also called your deductible).