Do you have a high deductible healthcare plan (HDHP)? Essentially, this type of plan offers lower premiums (monthly payments) with higher deductibles (the amount you’d need to pay out-of-pocket before your insurance begins to cover healthcare costs). While there are specific advantages to HDHP coverage, they don’t work for everyone.
How can you know if an HDHP is right for you? Let’s examine high deductible health plan pros and cons.
What Is a High Deductible Health Care Plan?
As defined by the IRS for 2023, an HDHP is any plan with a deductible of at least $1,500 for an individual or $3,000 for a family. Total yearly expenditures for an HDHP, including deductibles, copayments, and coinsurance, cannot be more than $7,500 for an individual or $15,000 for a family.
Under a high deductible health care plan, you will typically pay less in monthly premiums than you would through a traditional health care plan.
Most high deductible health care plans allow participants to have a Healthcare Savings Account (HSA), which can be used to deposit tax-free amounts into an interest-earning account. These amounts can be used to pay for healthcare services.
Pros of a High Deductible Health Care Plan
There are several advantages to an HDHP, including:
1. Monthly Premiums are Lower than More Traditional Healthcare Plans
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.
2. You Pay Less When Visiting a Healthcare Provider in Your Plan’s Network
Healthcare providers who agree to be considered in-network for a high deductible healthcare plan will offer a discounted rate to those with coverage, as compared to those who don’t have coverage.
Discounts are often as much as 30%, while specialist services may be 50% less than normal. This discounting results in immediate savings for the employee, even if they must pay the full amount due until their deductible is met.
As an example, a general practitioner may typically charge $150 for a sick visit, but under an HDHP agreement where the doctor is in-network, the same doctor may only charge $100 for the same visit to those who participate in the plan. Thus, while the employee will need to pay $100 out of pocket, there is still a discount on the service provided.
3. You Can Open a Health Savings Account
When you are a participant of a high deductible healthcare plan, you have the option to open a Health Savings Account (HSA). This type of account allows the holder and their employer to deposit monies tax-free that can be used for health care expenses such as co-pays, medications, or other medically required items.
For 2023, the limit that may be deposited into an HSA account is $3,850 for individuals and $7,750 for families. A $1,000 catch-up amount is permitted for people over age 55.
4. A High Deductible Health Plan is Cheaper for Employers
An HDHP is typically cheaper for employers than other, more traditional health plans such as PPOs.
The savings generated by the employers can be allocated to other employee benefits, like funding employee HSAs. An HSA grows just like a 401(k) plan does, allowing employees to accumulate more money they can use towards future medical expenses.
5. Once the Maximum Amount is Met, You Do Not Incur Any Additional Expenses for In-Network Care
If you spend the maximum amount allowed for 2023 — $7,500 for individuals or $15,000 for families — you will not need to pay any more money towards healthcare services during the year (as long as they are in-network).
While the maximum amount may be high, if a medical crisis occurs that requires a hospital stay, costs can quickly add up. Once the cap on payments is met, any in-network healthcare services will be free to plan participants for the remainder of the year.
Cons of High Deductible Healthcare Plans
HDHPs do have some downsides, including:
1. Some Individuals May Avoid Healthcare Treatment Due to High Costs
Individuals who are stretched thin for funds may delay or avoid seeking medical treatment due to the high cost of treatment. For example, someone injured may avoid the emergency room if they know it will result in an expensive bill that will be applied to the plan deductible.
This reluctance is especially true for those new to a plan who have not yet established an HSA.
2. It Is More Expensive to Manage a Chronic Illness With an HDHP
A chronic illness, such as heart disease or diabetes, can be much more expensive to manage under an HDHP than a traditional health care plan.
With these conditions, regular medications and health screenings may be required. These costs may quickly add up until deductibles are finally met. Each year the deductible will reset, resulting in continuously high medical expenses.
3. Few Exceptions to the Deductible Rules
Preventive care services that are in-network are typically covered under a high deductible health care plan before you meet your deductible. However, be sure to check if the service you are receiving counts as preventive care (which you can find detailed on Healthcare.gov), as non-preventive care will not be covered until the deductible has been met.
4. Premium Costs and Deductible Levels Seem to Rise Every Year
Each year, the IRS sets new deductible limits for high deductible health plans. While some plans may have lower deductible levels than those set out by the IRS, they usually still increase each year.
This slow but steady increase means that out-of-pocket costs go up every calendar year. The hike in costs may result in less money to spend on other items each year — such as rent, food, or transportation.
5. Contributions to Your HSA Are Capped
If you are expecting a significant medical expense for the year — such as the birth of a child or a planned surgery — you can only contribute money to your HSA to the extent that the IRS allows. Any additional expenses will need to be covered with after-tax money unless you have carried forward HSA deposits from prior years.
Wrapping it Up
High deductible health plan pros and cons can be quite overwhelming to sort through. While these types of plans can be beneficial to those who are relatively healthy, they can be very expensive for those who have chronic conditions or who experience a medical crisis.
It’s important to carefully consider your expected medical expenses before choosing to participate in a high deductible health care plan.