High-Deductible Health Plans: what they’re all about

1. What is a High-Deductible Health Plan?
2. What is a Health Savings Account?
3. What are the pros of a High-Deductible Health Plan?
4. What are the cons of a High-Deductible Health Plan?
5. How does a High-Deductible Health Plan work?
6. How does your HSA work with your High-Deductible Health Plan?

There are many options to consider when shopping for a health insurance plan. One option is a High-Deductible Health Plan (HDHP). These plans usually have lower monthly insurance bills (premiums) than other health insurance plans.

But they also have a high deductible. That means you need to pay more for health services before your insurance’s portion of cost sharing kicks in. Because of that, HDHP’s aren’t right for everyone.

Read on to learn more about HDHPs, including whether they may be a good option for you.

Interested in exploring a High-Deductible Health Plan? Call a licensed insurance agent at (800) 827-9990 to talk about plans, or browse your options online today.

What is a High-Deductible Health Plan?

A High-Deductible Health Plan, or HDHP for short, is a type of health insurance plan that has a higher deductible than a traditional plan. A deductible is the amount you pay out of pocket before your insurance company begins to pay its share.

While your monthly premium is usually lower for an HDHP, you may pay for more health care costs out of pocket. For example, let’s say you have a $2,000 deductible. That means you’ll always pay the first $2,000 of any covered medical services before insurance begins to share costs with you.

There are exceptions to paying your deductible in full first, like preventive care. Most HDHPs will cover services such as your annual physical exam. They may also cover vaccines and health screenings, usually at no cost to you.

For 2024, any plan with a deductible of at least $1,600 for an individual or $3,200 for a family is considered an HDHP.  But there is a limit. Annual out-of-pocket expenses such as deductibles and copayments cannot exceed $8,050 for an individual. And they can’t exceed $16,100 for a family.

HDHPs are popular because you pay a lower premium each month, says Adam Rosenfeld, the president of Rubicon Benefits, a division of World Insurance Associates, an insurance broker with offices in Melville, New York, and headquarters in Iselin, New Jersey, that provides employee benefits consultative services for businesses.

But you do need to do some research before you sign up for one of these plans. Otherwise, you may find that you’re spending thousands of dollars on out-of-pocket costs. This may make it hard to get any savings you might be hoping for from that lower monthly premium.

An HDHP is often combined with a Health Savings Account (HSA). Read below to find out what that is.

What is a Health Savings Account?

A Health Savings Account, or HSA, is a type of savings account. It lets you set aside money to pay for certain medical expenses, like deductibles, copays and coinsurance payments. This money is not taxable, so you save by not paying taxes on it.

You can also use these pretax dollars to pay for other expenses such as dental care or glasses. But you can’t use HSA funds to pay your monthly health insurance plan premiums.

“When you take the money out for these qualified expenses, you don’t pay taxes on it then,” says Rosenfeld. “And while it’s in your health savings account, it’s earning interest tax deferred.”

This means that your money will grow while in your account. And you won’t pay taxes on it unless you take the money out for non-eligible medical expenses. These might include nutritional supplements, health club dues or most cosmetic surgeries.

If you have an HSA, you can contribute $4,150 in 2024 if you are an individual. And you can contribute up to $8,300 if you’re a family. You can use the funds in your HSA at any time.

Unlike with other health-related financial accounts, such as a Flexible Spending Account (FSA), you can roll over all your HSA funds from year to year. And you can take the account with you if you change jobs or even switch to a different insurance plan. The catch with an HSA is that you must be enrolled in an HDHP to contribute to one.

What are the pros of a High-Deductible Health Plan?

There are some definite advantages of having an HDHP. These include:

Your monthly premiums will be lower. “High-deductible health plans are designed for people who are super healthy. They’re designed for people who rarely go to the doctor except for preventive care,” says Bill Green. He’s the CEO of the Green Insurance Agency in Orange Park, Florida.

If you think you’ll only need preventive care, such as your yearly physical exam and screening tests, an HDHP makes sense for you. As long as you stay in the network, these things will be covered 100%.

You get a spending account with tax advantages. HDHP’s are usually paired with an HSA. That way, you can set aside money each year on a pretax basis to pay for certain medical expenses.

“It makes sense if you have enough savings to contribute to your HSA every year. It also makes sense if you have enough of a financial cushion,” says Green. That way, you’ll be able to meet the out-of-pocket maximum if there is an emergency. HSA funds can be rolled over each year, too. That way, you can build up reserves to pay for health care expenses later in life, say in retirement.

Thinking about an HDHP? Call a licensed insurance agent at (800) 827-9990 to talk about plans, or browse your options online today.

What are the cons of a High-Deductible Health Plan?

There are downsides to having an HDHP, too. These include:

You’ll be responsible for deductibles up-front. If you’re considering an HDHP, you’ll want to make sure that you have enough in your savings account to pay for health care expenses. This will help cover you in case of an emergency.

“I always recommend that people add up the maximum out-of-pocket limits on any plans being compared, plus the monthly premiums,” says Rosenfeld. This will help you get a sense of how much you’d spend in a worst-case scenario for that plan.

If you don’t have enough in savings to cover you, you may be better off looking for a different health insurance plan. A plan that helps you pay your expenses throughout the year may be a better option for you. You also may want to think twice about signing up for an HDHP if you can’t afford to open an HSA.

You may try to delay medical care. It’s important to be sure that you have savings if you do opt for an HDHP, says Green. Then, if you sprain your ankle or notice a suspicious breast lump, you’ll be more likely to address it right away. And that way, you won’t have to wait for things to get so bad that you end up in the emergency room.

How does a High-Deductible Health Plan work?

You’ll enroll in an HDHP the same way you enroll in any health care plan. After that, you’ll pay out of pocket for medical expenses until you reach your deductible. Once you reach your out-of-pocket deductible, then you and your insurance company will share your medical costs.

At that point, if your plan pays 80%, for example, you’ll be responsible for 20%. Once you meet your out-of-pocket maximum, your plan pays for all covered medical services in full.

The one exception is preventive care. Most HDHPs will cover preventive services, such as annual physical exams, at no cost to you. They may also include things such as:

• Blood pressure, diabetes and cholesterol tests
• Cancer screenings such as mammograms and colonoscopies
• Flu shots and other preventative vaccines

How does your HSA work with your High-Deductible Health Plan?

Some HDHPs have a preferred HSA provider. They may include information on how to enroll with them on their website or in their brochure. Your plan then contributes money into your HSA. This is something called the premium pass through.

You can then make additional voluntary tax-deductible contributions into the account. But you can’t go over the IRS limit without incurring a penalty. This limit may change from year to year. That’s why it’s good to know what this limit is when deciding if an HDHP is right for you.

You can use your HSA to pay for a wide range of things, including:

• Breast pumps and supplies
• Dental and eye exams
• Eyeglasses
• Hearing aids
• Menstrual products
• Over-the-counter drugs
• Protective masks
• Smoking cessation programs
• Transportation for medical care
• Weight loss programs (if a treatment for a specific disease such as diabetes)

You could also take money from your HSA for items other than qualified medical expenses. But if you do, it will be subject to federal income tax. You’ll also have to pay an additional 20% penalty tax if you’re under the age of 65. The best option is to let the money in your HSA grow over time, tax free. And remember, an HSA is portable. That means you can take it with you if you switch jobs or switch insurance plans.

Still have questions? Call a licensed insurance agent at (800) 827-9990 to talk about plans, or browse your options online today.