Choosing health insurance can feel like a balancing act. A plan with a lower monthly premium may save you money each paycheck, but you could pay more when you need medical care.
That is the trade-off with a high-deductible health plan (HDHP).
An HDHP can be a good choice for some people, especially if they have lower health care costs and can save money in a health savings account (HSA). But it may be harder to manage if you expect frequent medical care or would struggle with a large, unexpected bill.
Here is what to consider before choosing a high-deductible health plan.
What is a high-deductible health plan?
An HDHP is a health insurance plan with a higher annual deductible than many traditional plans.
Your deductible is the amount you generally pay for covered health care before your insurance plan starts sharing more of the cost.
In exchange for taking on a higher deductible, HDHPs often have lower monthly premiums. A premium is the amount you pay regularly to keep your health insurance coverage.
The federal government sets minimum deductible amounts and other requirements for plans that qualify as HDHPs. These amounts can change from year to year.
Not every plan with a deductible is an HDHP. Check your plan documents or ask your insurer whether a plan officially qualifies, especially if you want to contribute to an HSA.
How does an HDHP work?
With an HDHP, you may pay the negotiated cost of covered services until you meet your deductible.
Depending on your plan, those services may include:
- Sick visits
- Specialist appointments
- Lab tests
- Imaging
- Prescription medications
After you meet the deductible, your insurance may begin paying a larger share of covered costs. You may still owe copays or coinsurance until you reach your plan’s out-of-pocket maximum.
Your exact costs depend on your plan. Review the summary of benefits and coverage before enrolling.
Does an HDHP cover preventive care?
Many preventive services can be covered without requiring you to meet your deductible first.
Depending on your plan and eligibility, covered preventive care may include:
- Annual wellness visits
- Vaccines
- Certain cancer screenings
- Blood pressure checks
- Some other recommended preventive services
Preventive care is different from care for a new symptom, an ongoing condition or a health problem that needs treatment. Those visits and services may be subject to your deductible.
Check your insurance plan so you know what preventive care it covers and whether you need to use an in-network provider.
What is the connection between an HDHP and an HSA?
Many people choose an HDHP because it may allow them to contribute to a health savings account, or HSA.
An HSA is a tax-advantaged account that you can use for qualified health care expenses.
Depending on your eligibility, you may be able to use HSA funds for expenses such as:
- Deductibles
- Copays and coinsurance
- Prescription medications
- Dental care
- Vision care
- Other qualified medical expenses
The money in an HSA belongs to you. Unused funds can roll over from year to year and you can generally take the account with you if you change jobs.
The federal government limits how much you can contribute to an HSA each year. Some employers also contribute money to employees’ accounts.
For more on how HSAs compare with flexible spending accounts, read FSA vs. HSA: How to Work Them to Your Advantage.
What are the possible advantages of an HDHP?
An HDHP may be a good fit for some people because of its lower premiums and HSA options.
You may pay less each month
HDHPs often have lower premiums than plans with lower deductibles.
That can be helpful if you do not expect to use much medical care during the year.
You may be able to save in an HSA
An HSA can help you set aside money for current or future health expenses.
Some people use the savings from lower premiums to build their HSA balance.
HSA money can roll over
Unlike many flexible spending accounts, HSA money does not usually need to be spent by the end of the year.
You can save it for future medical expenses.
You still have protection against very high costs
An HDHP has an out-of-pocket maximum. Once you reach that amount for covered in-network care, the plan generally pays 100% of additional covered in-network costs for the rest of the plan year.
That limit does not include your monthly premiums and some costs may not count toward it. Check your plan details.
What are the possible drawbacks?
The biggest disadvantage is simple: You may need to pay more of your health care costs yourself before your insurance begins sharing more of the cost.
A large bill could be difficult to manage
A medical problem early in the plan year could mean paying a large amount before you have had much time to save in your HSA.
Consider whether you could cover your deductible if an unexpected illness or injury happened.
Regular care can add up
An HDHP may cost more out of pocket if you regularly need:
- Specialist appointments
- Lab tests
- Imaging
- Physical therapy
- Ongoing treatment
- Expensive medications
The plan with the lowest premium is not always the plan with the lowest total yearly cost.
You may delay care because of cost
Some people with high deductibles may be tempted to put off appointments, tests or treatment because they are worried about the bill.
Skipping needed care can allow some health problems to get worse. Make sure the plan you choose is one you can realistically afford to use.
Who might consider a high-deductible health plan?
An HDHP may be worth considering if:
- You generally use little medical care
- You can afford the deductible if you need unexpected care
- The monthly premium is significantly lower
- Your employer contributes to an HSA
- You can regularly add money to an HSA
- You want to save HSA funds for future health expenses
But being healthy today does not guarantee that you will have low medical costs all year. Anyone can have an unexpected illness or injury.
Who may want to compare other options carefully?
A different type of health plan may be a better fit if:
- You expect frequent medical visits
- You manage one or more chronic health conditions
- You take expensive prescription medications
- You are planning surgery or another major treatment
- You expect pregnancy or childbirth during the plan year
- You regularly need therapy, specialist care or medical equipment
- You would have trouble paying a large bill before reaching your deductible
These situations do not automatically mean an HDHP is the wrong choice. The total cost still depends on the plans available to you.
How can you compare an HDHP with another plan?
Do not look at the deductible alone.
For each plan, compare:
Monthly premiums
Calculate how much you will pay in premiums for the full year.
The deductible
Think about whether you could pay that amount if you needed a lot of care early in the year.
Copays and coinsurance
Find out what you pay after meeting the deductible.
The out-of-pocket maximum
This can help you compare your financial risk in a year when you need a lot of covered care.
HSA contributions
Include any money your employer contributes to your HSA. That can make an HDHP more financially attractive.
Prescription costs
Check how the plan covers your regular medications.
Your expected health care
Look at what you used last year and what you already know about the coming year.
You may want to consider:
- Regular doctor and specialist visits
- Prescription medications
- Planned procedures
- Therapy
- Lab work
- Imaging
- Pregnancy care
Past costs cannot predict everything, but they can help you compare plans more realistically.
A simple way to think about the decision
Ask yourself two questions.
What am I likely to pay in a typical year?
Compare premiums and your expected health care costs.
What could I afford in a bad year?
Compare the deductible and out-of-pocket maximum. Think about how you would cover those costs if you had an unexpected medical need.
The best plan is not always the one with the lowest premium or the lowest deductible. It is the one that offers the best balance of expected costs, financial risk and coverage for your needs.
The bottom line
A high-deductible health plan may help you save on monthly premiums and build savings in an HSA.
But you could pay more yourself when you need health care.
Before enrolling, compare the full cost of each option. Look at premiums, deductibles, out-of-pocket limits, prescription coverage, HSA contributions and the care you expect to need.
Your health needs and finances can change from year to year, so review your options each time you choose health insurance.
