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Part of the Series Health Insurance BasicsKnow the Basics
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What Does Health Insurance Cost?
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Finding a Health Plan
Do you want to save money on your monthly health insurance premiums and have the opportunity to open a health savings account? If so, you’ll need to have a high-deductible health plan (HDHP). Let’s discuss what these plans look like, their pros and cons and the times in your life when you might seek out or avoid an HDHP.
According to IRS rules, an HDHP is a health insurance plan with a deductible of at least $1,600 for individual coverage, or at least $3,200 for a family plan in 2024. The deductible is the amount you’ll pay out of pocket for medical expenses before your insurance pays anything. In addition, the plan’s out-of-pocket maximum must be no higher than $7,500 for an individual plan or $15,000 for a family plan. The out-of-pocket maximum is the most you’ll have to pay in a year for medical expenses covered by your insurance plan.
An HDHP will usually have lower premiums than an equivalent health insurance plan with a lower deductible. For folks who don’t anticipate many medical expenses for the upcoming year, it makes sense to minimize your premiums and choose an HDHP. There’s a good chance you’ll save money—perhaps several hundred dollars or more over the year—this way.
Just be sure you can afford the out-of-pocket maximum in a worst-case scenario. If you can’t, you could end up in medical debt, and the added interest will make it even harder to pay your bills. A health insurance plan with higher premiums but an affordable out-of-pocket maximum might be a safer choice if the HDHP’s out-of-pocket maximum is more than you can cover.
The options above show a situation where it clearly makes sense to choose the HDHP. With either plan, you’ll end up spending $4,500 of your own money in premiums and deductibles if your medical expenses for the year are at least as much as your deductible. But with the HDHP, you’re only guaranteed to spend $1,500 in premiums, unless you know for a fact what your upcoming medical expenses will be.
Also, having the HDHP lets you contribute to a health savings account. If you’re in the 24% federal tax bracket and you do incur $3,000 in medical expenses, you could use your HSA to pay for them with pre-tax dollars. If you used post-tax dollars, that same $3,000 in medical expenses could cost you nearly $4,000. If you chose the lower deductible plan (the non-HDHP), you could pay $2,550 of your $3,000 in medical expenses from a flexible spending account (FSA) if your employer offers one. Then you’d have similar tax savings with the non-HDHP.
Even this simplified example isn’t really that simple. Similarly, most real-life situations aren’t clear cut as to whether you should select a high-deductible or low-deductible plan. You’ll need to do the math for your own circumstances, taking into account your likely medical expenses for the year and the premiums, deductibles, and out-of-pocket maximums for the available plans.
If you do choose the high-deductible plan, you’ll still have 100% coverage for preventive services from in-network providers before you meet your deductible because of the Affordable Care Act requirements. Quite a few services fall into this category, and you aren’t responsible for any copayment or coinsurance for any of them. Here are a few examples taken from Healthcare.gov:
As noted already, the other major advantage of having an HDHP, besides typically lower premiums, is that it allows you to contribute to a health savings account. Because HSA contributions come from pre-tax dollars, you can save a considerable amount on your medical expenses when you pay for them with your HSA. For example, if you’re in the 24% federal tax bracket, a $100 medical bill will effectively cost you only $76. You must have an HDHP to be eligible to contribute to an HSA and in order to be eligible to receive any employer contributions to your HSA.
In fact, “free” money in the form of optional employer contributions to your HSA is another potential benefit of having an HDHP and an HSA. In addition, you don’t have to keep your HDHP forever to take advantage of an HSA in future years. Contributions carry over from one year to the next, and you can invest your contributions to help them grow, too. In the future, even if you no longer have an HDHP, you can use money previously deposited to your HSA to pay for health expenses.
The big drawback to choosing an HDHP is having potentially high out-of-pocket expenses for the year. As noted above, that means HDHP plan participants could face out-of-pocket costs of up to $8,050 for individual coverage or $16,100 for a family plan in 2024.
Another potential problem with enrolling in an HDHP is that you may find yourself wanting to skip doctor visits because you’re not used to having such high out-of-pocket costs. Don’t choose an HDHP if it will cause you to avoid doctors, procedures or prescriptions because you want to save money in the short term. Neglecting medical issues could end up costing you more in the long term, plus you’ll be jeopardizing your health.
Whether or not it makes sense to have an HDHP depends on your life stage and the associated medical expenses you’re likely to incur. In particular, you should weigh the benefits of lower monthly premiums against the risk of accumulating higher deductibles and out-of-pocket expenses that can add up and overwhelm some consumers.
If you’re young and healthy and rarely go to the doctor or take prescription medication, you’ll probably save a lot of money by choosing an HDHP since the premiums are lower. If you’re planning to have a baby in the near future, an HDHP might not be a good choice since the costs of hospital childbirth are high and your out-of-pocket expenses could easily reach your high out-of-pocket maximum. In that case, it may actually be more cost-effective to opt for a plan with lower deductibles and lower out-of-pocket costs instead, even if the premiums are initially higher.
Similarly, a HDHP also might not make sense if you have young children, since they tend to visit the doctor frequently, which can quickly accumulate deductibles. When your children are older and if they and you are healthy, an HDHP might make more sense. On the other hand, if anyone covered by your plan has a chronic condition that needs ongoing treatment, you might benefit from a plan with a lower deductible. Finally, if you’re older, you’re statistically more likely to have higher medical expenses, so you may not want to take a chance on an HDHP. But if you’re still in good health and have no reason to anticipate expensive healthcare costs, an HDHP might work for your circumstances despite your age.
Whether an HDHP will save you money always depends on the details of the specific plans available to you and your expected medical expenses for the year. An HDHP is not automatically a better or worse deal than an insurance policy with a lower deductible just because your circumstances fall into a certain category. You always have to do the math for your own situation.
If you have access to a health savings account (HSA), then you have a high-deductible health plan. This type of insurance has a lower premium and a higher deductible than a traditional health plan. Having an HDHP is one of the requirements for a health savings account (HSA). If your health insurance plan for 2024 has a minimum deductible of $1,600 for individual coverage or $3,200 for family coverage with maximum out-of-pocket costs of $8,050 ($16,100 per family), then it qualifies as an HDHP.
You could potentially be on the hook for high out-of-pocket medical costs. You'll have to meet the deductible in your plan before the plan starts to kick in for covered costs. The plan will pay for preventive medical care such as routine visits and well-baby check-ups, but an accident or unexpected illness could mean thousands of dollars in payments to medical providers.
If you are generally healthy and want to save for future health care expenses, the high-deductible plan gives you access to a tax-advantaged savings vehicle, the health savings account. The HSA can make sense for many people, especially those nearing retirement, because the money can be used for medical care in retirement.
An HDHP can save you money in the form of lower premiums and the tax break you can get on your medical expenses through an HSA. It’s important to estimate your health costs for the coming year to see how much you might pay out of pocket with an HDHP before you sign up. In some cases, a plan with a lower deductible will save you money, even though it will usually have higher premiums and won’t let you have an HSA. In addition, if your employer offers it, you can use an FSA to get tax savings on your medical expenses with a lower-deductible plan.