High-Deductible Health Insurance
What is high-deductible health insurance? How is it different from other kinds of health insurance? And can you save money with a high-deductible health plan? You’ll find answers to each of those questions and many more in this article.
According to the CDC, almost half of American adults with employer provided health insurance have high-deductible policies. These policies are common across the country, and you may have one without even knowing it.
So, what is high-deductible health insurance? How does it work? What does it cover? What doesn’t it cover?
You’ll learn about that in this article. And you’ll also learn about the following:
What is High-Deductible Health Insurance?
On the surface, a high-deductible insurance plan is exactly what it sounds like.
Some people will tell you a high-deductible health insurance plan, or HDHP, is one with a deductible that’s higher than usual.
They also might say HDHPs have premiums that are lower than others. Although this is sometimes true, that’s not always the case. Some of these plans come with surprisingly high premiums – and even coinsurance amounts – as well as deductibles.
As far as the IRS is concerned, though, for a health plan to qualify as an HDHP, it must have a deductible of at least $1,350. That’s just for individual plans, though. High-deductible family plans must have deductibles of $2,700 or more.
Why are these figures so specific? Because after you enroll in an HDHP, you can combine it with a health savings account, or HSA.
An HSA is “a type of savings account that lets you set aside money on a pre-tax basis to pay for qualified medical expenses,” like deductibles, copayments, and coinsurance charges, according to healthcare.gov.
The result: you can lower your overall healthcare costs by a good bit if you have both an HDHP and an HSA.
Also, total out-of-pocket expenses for a year can’t go over $6,750 for an individual HDHP. And they can’t be more than $13,500 if it’s for a family. (Note: these figures only apply to in-network treatments and services. So, if you get care outside of your plan’s network, you may have to pay more than your HDHP’s out-of-pocket limit.)
The bottom line here: expect to spend more of your own money on medical care with an HDHP than you would if you had a more traditional health plan.
How much more depends on the deductible tied to your particular policy.
How Does High-Deductible Health Insurance Work?
High-deductible health plans work like almost any other kind of health plan.
In other words, the first things you’ve got to deal with are the plan’s monthly premium payments. Although these tend to be lower than the premiums attached to health policies with lower deductibles, that’s not true in every situation.
After that, you’ve got the plan’s deductible. As their name suggests, the deductibles tied to HDHPs are higher than the ones for other health plans.
You pay toward your deductible until you reach that amount. After that happens, your insurer starts paying its share of covered health and medical costs.
As you learned earlier, you only pay so much out of your own pocket for qualified medical expenses if you have an HDHP. If you have an individual plan, that amount can’t be more than $6,750 per year. If yours is a family plan, it can’t go over $13,500 per year.
Between the time you reach your policy’s deductible and hit its out-of-pocket maximum, you’ll need to cover things like copays and coinsurance charges.
Also, if you receive medical care from an out-of-network provider, you might have to pay more than your HDHP’s out-of-pocket maximum. (Most high-deductible health insurance plans are HMOs or PPOs. Both policy types use provider networks. What does that mean? Read our HMO vs. PPO article. Or check out this article of ours, “Which Type of Health Insurance Plan is Right for You?”)
If you have an HSA, though, and either you or your employer contribute to it, you can use those pre-tax dollars to pay many of your medical bills. If your HAS is an individual HDHP, you can contribute as much as $3,500 to your HSA in 2019. And if it’s a family HDHP, you can contribute up to $7,000.
You don’t have to spend all that money by the end of the year, either. Whatever you don’t use rolls over to the next year. It may even earn interest, according to healthcare.gov.
How are High-Deductible Health Plans Different from Other Health Plans?
To be frank, HDHPs aren’t all that different from other kinds of health plans.
The main differences:
- HDHPs have higher deductibles.
- They often have lower premiums.
- They sometimes charge higher coinsurance amounts.
- Their out-of-pocket maximums are lower. (The out-of-pocket limits tied to other plan types top out at $7,900 for individuals and $15,800 for families.)
- You can combine an HSA with an HDHP.
Consider high-deductible health insurance policies like you’d look at any other policy type.
Add up all the components listed above – like premiums, deductibles, and other out-of-pocket costs – and then compare that to what you might spend on any other policies you’re considering.
Just make sure that if you choose an HDHP in the end you can afford its out-of-pocket maximum. After all, you may be on the hook for that amount if you need a lot of health or medical care over the next year.
Is Catastrophic Health Insurance the Same as High-Deductible Health Insurance?
No, it isn’t. That said, a catastrophic health insurance plan is a type of HDHP.
You see, catastrophic health plans have high deductibles. Very high deductibles. All of them come with deductibles of $7,900.
On top of that, they don't cover any benefits other than three primary care visits per year before you reach that eye-opening deductible, according to healthcare.gov.
Given that, why would anyone enroll in a catastrophic plan? To avoid medical bankruptcy. There are two types of people who primarily purchase these plans. One is young and healthy people who rarely go to the doctor or need medical care. The other people who can’t afford any other kind of health insurance plan but want to protect themselves from a serious injury or illness.
On a related note, only people in specific situations can enroll in a catastrophic health insurance plan.
More specifically, to qualify for one of these policies, you need to:
- Be under the age of 30
- Qualify for a hardship exemption
- Be unable to afford job-based or marketplace coverage
For more information on this type of insurance, check out our article on Cadillac vs. catastrophic health plans.
How Much Does High-Deductible Health Insurance Cost?
This is a tough question to answer. Why? Because the premiums tied to high-deductible health plans can be all over the map. And the same is true of their deductibles.
Yes, HDHP deductibles are higher than those attached to more traditional health plans. Their premiums tend to be lower, too. But that doesn’t really tell you how much you’re going to spend on one of these policies.
What can be said here: your yearly deductible will be at least $1,350 if you go with an individual HDHP. And it’ll be at least $2,700 if you choose a family HDHP plan.
Also, the most you’ll ever have to pay is $6,750 for an individual plan or $13,500 for a family plan. That’s because the out-of-pocket maximums or limits associated with these plans can’t be higher than those amounts.
If you don’t see a doctor or get any medical care during the plan year, though, you’ll just have to cover the plan’s monthly premium payments. Which could range from less than $100 to more than $500. You may not pay this full amount if your get your plan through an employer. Some cover part or even all their employees’ premiums.
That’s why you need to look past an HDHP’s deductible when shopping for one of these policies. You need to look at its premiums and other out-of-pocket costs and limits as well. And you need to look at any additional restrictions they put in place, too.
Where Can I Buy High-Deductible Health Insurance?
You can get high-deductible health insurance from the same places you get other forms of health insurance.
For example, you can get it from an employer. You can get it from the marketplace (or exchange) set up by the Affordable Care Act. Or you can get it directly from insurance companies.
Actually, if you rely on an employer for your health coverage, a HDHP may be the only type of plan it offers you. At the very least, it’s likely to be one of the plan types it offers you.
Although some companies are moving away from high-deductible plans, most others are sticking with them. Which helps explain why more than 43 percent of adults in the US who get health coverage from employers have HDHPs.
Many marketplace and off-marketplace -- bought directly from insurers – plans have high deductibles, too.
In fact, the average deductible for a silver-level marketplace policy in 2017 was almost $4,000, according to one recent study. That’s firmly in HDHP territory. To learn more about these “metal plans,” by the way, read our article, “Which Type of Obamacare Plan is Right for You?”
Why Should I Enroll in a High-Deductible Health Plan?
If you have no health issues and you don’t go to the doctor very often, an HDHP might be a good option for you. Your monthly premium should be lower than a more traditional health plan.
A high-deductible plan also may be a good option for you if you don’t anticipate any major medical problems popping up in the next year, you have a good amount of savings, and you don’t mind a bit of risk. In this case, you should be able to cover the deductible and any other out-of-pockets costs that surprise you.
One other situation where an HDHP tends to be a good option: your employer contributes funds to the HSA tied to your plan. This is basically “free” money you can use to pay your health and medical bills.
Finally, an HDHP is a good option if your only other choice is to go without health insurance at all.
Why Shouldn’t I Enroll in a High-Deductible Health Plan?
If you have a lot of health problems, an HDHP probably won’t be the most economical option for you. You’ll pay for all your doctor visits, prescription drugs, and other services out of your own pocket until you reach your plan’s sizeable deductible.
The same is true if you have a chronic condition that requires regular trips to see a physician or specialist or ongoing treatments.
You also may want to avoid health plans with high deductibles if you’re already pregnant or plan to become pregnant.
Likewise, if you have children, they tend to require more medical care than older kids or adults. An HDHP isn’t a good choice in that situation.
Make sure you can afford a plan’s out-of-pocket maximum if you decide to go the HDHP route. If you can’t, or if you’re not sure you can, think twice – assuming you have another choice.
Some health insurance is better than no health insurance. So, if your only option is to buy or otherwise enroll in a high-deductible plan, go with it.
What are the Pros and Cons of High-Deductible Health Insurance?
The pros of high-deductible health insurance plans:
- They often have lower premium payments than more traditional health policies.
- Their out-of-pocket maximums are lower, too.
- Your out-of-pocket costs will go way down after you reach your plan’s deductible or maximums.
- You can combine an HSA with an HDHP--and that could save you money.
- If you get your health coverage from an employer, it may contribute funds to your HSA.
The cons of high-deductible health insurance plans:
- Their deductibles are higher--sometimes a lot higher--than the ones tied to more traditional health policies.
- The coinsurance charges associated with them can be higher, too.
- You can quickly get into financial trouble with an HDHP if you can’t afford to cover its deductible.
- Some people avoid going to the doctor after enrolling in a high-deductible plan. Others don’t take medications as directed, or delay filling prescriptions, because of the related costs. Doing either of those things can make you sick--or worse.
What Should I Consider or Think About Before Getting High-Deductible Health Insurance?
Before you buy a high-deductible health insurance plan, ask yourself the following questions:
- Will I be able to pay the full deductible if need a lot of medical care during the next year?
- Will I be able to pay the out-of-pocket maximum amount if needed?
- Does the HDHP come with an HSA? If not, will you open one elsewhere? (You can do this at certain banks and other financial institutions.)
- Will I be able to contribute to the HSA?
- Will your employer contribute to the HSA? (If you get your HDHP from an employer.)
- Will it allow you to use the healthcare providers you prefer?
And if you’re trying to choose between multiple HDHPs, focus on these aspects as your main points of comparison:
- Monthly premium payments
- Copays and coinsurance amounts or charges
- Prescription medication cost structures
- Out-of-pocket limits or maximums
- Out-of-network provider rules
- Any HSA contributions your employer might offer (if you get your plan from an employer)
How Can I Cut Healthcare Costs After Enrolling in a High-Deductible Health Plan?
Here are some steps you can take to keep your expenses to low with an HDHP:
As much as you can, calculate all the costs you might have to deal with before you choose a plan. Don’t just look at its monthly premiums. Look at its deductible, copays, and coinsurance charges. Look at its out-of-pocket maximums, too. The only way to get a feel for how much you may spend with an HDHP is to add up all these potential expenses.
When you see a doctor, ask for a few options when it comes time to discuss medications, treatments, and more. He or she should be able to point you to cost-cutting generic drugs, for example. Or they may suggest alternative forms of care that could save you money.
Also, take advantage of as many free or cheap health and medical services as you can. If you get an HDHP from an employer or the marketplace, annual checkups and many routine screenings should cost you little to nothing. For more on this topic, see our article about health insurance and preventive care.
Take advantage of your ability to combine an HSA with your HDHP, too. You especially want to do this if you get coverage from an employer who offers to contribute funds to your HSA. Either way, you can use the pre-tax funds in your HSA to pay for certain medical expenses, and that will save you some money.
One way you shouldn’t try to cut costs with an HDHP is to avoid seeing your doctor when it’s needed, or to stop taking or filling needed prescriptions. That’s a surefire way to get or stay sick. Also, it may cause you to spend even more money in the long run.
The Bottom Line
High-deductible health insurance plans can be wonderful or terrible, depending on your situation.
If you’re young and healthy, an HDHP could be the best option for you from a financial standpoint.
If you’ve got some medical issues, though, or if you tend to see your doctor or go to the hospital a lot each year, you might spend more with an HDHP than you would if you had a more traditional health plan with a lower deductible.
Because of this, it’s important to look at high-deductible health plans closely and carefully before you buy or enroll in one.
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