Can a high-deductible health plan (HDHP) really help you save money?

You’ll have to pay a lot of out-of-pocket medical bills and expenses before your coverage kicks in.

Elissa

Elissa Suh

Published June 24, 2019

KEY TAKEAWAYS

  • Qualify for an HSA with this type of health plan

  • HDHPs can lower your monthly health insurance premium

  • But, you might spend more money in the long run due to the high deductible

  • Unless you don't expect to get sick or can cover the deductible on your own, HDHPs can be risky

If you’re young and healthy, you might not like paying monthly premiums for health insurance. In 2018, the average annual premium for individuals was nearly $7,000 and over $19,000 for families. You could potentially save money — by paying lower premiums — by choosing a high-deductible health plan (HDHP).

These plans also qualify you for a health savings account (HSA), but you’ll have to cover any medical expenses — even a primary care visit — on your own until your coverage kicks in.

With an HDHP you’re taking a risk with your health, since your provider virtually won’t pay until an unplanned (and expensive) illness or accident happens. This is why high-deductible plans can be considered a form of catastrophic coverage.

In this article:

How does an HDHP work?

The most common types of health plans are PPOs and HMOs. PPOs (preferred provider organizations) have a large network of providers, most of whom you can see without referrals, while HMOs (health maintenance organizations) are more strict about who you can see for care.

A high-deductible health plan might be like either of these types (HMO and PPO plans), with a large or small network of providers, depending on the specific health insurance provider.

Additionally, HDHPs may not always be an option; if you’re covered through your workplace, the employer-sponsored health insurance might not offer an HDHP plan, though they’re gaining popularity due to their low deductibles. When buying any type of insurance plan, not just health insurance, you’ll typically choose a deductible.

A deductible is the amount that you have to pay out of pocket before your health insurance kicks in and begins covering those costs for you. HDHPs simply have a larger deductible than a standard insurance plan like PPOs or HMOs.

For 2020, the deductible minimums to be considered an HDHP are:

  • $1,400 for an individual
  • $2,800 for families

You’ll be responsible for all costs of care until this deductible amount is met. Then your insurance will cover your health expenses. But, if you have coinsurance, then you will still need to pay for a portion (usually a percentage) of medical expenses until you hit an out-of-pocket maximum for the year. (We'll go into an example below.)

As of 2020, maximum out-of-pocket expenses for an HDHP are:

  • $6,900 for an individual
  • $13,800 for families

After you hit this maximum, your HDHP will assume all costs.

Using the HDHP limits for individuals we listed above, this is how much you’ll pay based on the cost of the medical expenses if you have coinsurance:

  • $0 to $1,400: You pay all costs within the deductible.
  • $1,400 to $6,900: With coinsurance, you pay a certain percent, and the insurer pays a certain percent (20%/80% for example).
  • Over $6,900: Insurance pays for everything since you've exceeded the out-of-pocket max.

This limit doesn’t apply to in-network provider services, meaning you will still spend out of pocket and pay for medical costs with providers who aren’t in your network. The monthly premium you pay does not count toward the limits either. Set by the IRS, both these minimums and maximums are subject to change every year.

Depending on the provider, HDHPs may come with select benefits like wellness programs and preventive services at no cost.

HSAs

To offset that potential cost of a high deductible health plan, you can open a health savings account (HSA). If you have an HDHP, you might automatically qualify for one. (If you are enrolled in Medicare, or someone else’s health plan, you may not be eligible. You can read more about HSAs here.)

Health savings accounts offer a tax-advantaged way to save money for your medical expenses while potentially investing it, too. You can use the money you’re saving from low premiums to make a tax-deductible HSA contribution that will grow potentially tax-free, when withdrawn for eligible medical expenses.

There are HSA contribution limits, but your funds roll over to the next year, unlike a flexible savings account (FSA). Additionally, your plan moves with you; even if you no longer have your plan, you can still use the funds in the future for qualified expenses.

Want to save for more than just qualified health expenses? Our partner Fiona can help you find a bank account that fits your needs.

Is a high-deductible health plan better?

A high-deductible health plan can sound enticing with its low monthly premiums, especially if you’re trying to save money, or you’re self-employed. However, lab tests and hospital visits can add up quickly and in the unfortunate event you that you need surgery or visit the emergency room you’ll be stuck covering these costs on your own if you don’t meet the deductible.

According to a 2018 survey by the International Foundation of employee benefits, the average deductible for HDHP plans is over $2,200 for individuals and over $4,000 for families. That’s nearly twice the amount of a standard coverage where the average PPO deductible was under $1,000 for individuals and under $2,000 for family coverage.

People with chronic conditions or chronic illnesses may not benefit from an HDHP. If you need frequent medical care, you will have to pay a lot out of pocket before the deductible kicks or you reach the out-of-pocket max. On the other side of the spectrum, those with an illness who avoid the doctor to save money may end up with a chronic disease themselves.

In a way, deciding on this type of insurance is taking a gamble on how healthy you are and that you’ll remain that way. Consider the risk you’re taking and weigh it against the financial burden and cost of insurance. You should also consider your age; an HDHP is less of a risk when you’re 20 years old as opposed to 40.

Are HDHPs worth it?

Pros

  • Save money with lower premiums
  • HSA-eligible
  • Potentially large network of providers

Cons

  • Pay more out-of-pocket because of the high deductible
  • High out-of-pocket maximum
  • HSAs come with restrictions (eligible expenses and investment options)
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Alternatives to HDHP

If you’re primarily turning to HDHPs because of the low cost, there might be cheaper ways to get health insurance. If you’re a low-income earner, you can qualify for a health insurance premium subsidy to help you reduce your monthly premiums. You will need to make 100% to 400% below the federal poverty level. Apply through your state health insurance marketplace.

Another way to get affordable care is through Medicaid, which offers free or no-cost insurance coverage. Families and individuals who earn below the federal poverty level can qualify. Check out our state-by-state guide to Medicaid or contact your state Medicaid office for more details.

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