- Any health insurance policy with a deductible that meets or exceeds thresholds set by the IRS is considered a high-deductible health plan (HDHP).
- In 2022, the minimum deductible for an HDHP plan is $1,400 for an individual and $2,800 for a family.
- If you have an HDHP, you can contribute to a tax-advantaged health savings account (HSA) and use the account to pay for medical costs.
- While HDHPs can save healthy folks money, they can be expensive for those with chronic conditions.
Whether you’re weighing the health insurance choices your employer offers or you’re looking for your own policy on a health insurance exchange, chances are good that you’ll see an option for a high-deductible health plan (HDHP). Signing up may be tempting, especially since the premium can be more affordable than other insurance plans. But what are the trade-offs and potential risks?
Before you sign up for an HDHP, here’s what you should know about these plans and how to figure out if one is right for you.
Inside this article
What is a high-deductible health plan?
An HDHP is exactly what it sounds like: A health insurance plan that has a higher deductible than a traditional policy typically does. In 2022, an individual health plan must have a deductible of $1,400 or more to qualify as an HDHP; for a family plan, the minimum deductible is $2,800.
“In recent years, enrollment in HDHPs does seem to be plateauing a bit, but in general enrollment in HDHPs has been steadily increasing over the past 20 years,” says Dr. Jeffrey T. Kullgren, research scientist at the VA Center for Clinical Management Research in Ann Arbor, Michigan. “A very large proportion of people who enroll in marketplace health insurance plans are enrolled in HDHPs.”
In exchange for that higher deductible, you typically pay a lower premium. In 2021, the Kaiser Family Foundation reports that the average worker contribution for an HDHP plan with a health savings account was $95 a month for an individual plan and $393 for families, versus premium contributions of $110 and $525, respectively, for plans with lower deductibles.
As with any health plan, you’ll bear the full cost of the health care services you need until you reach your deductible and your insurance coverage kicks in. An exception is preventive care, which is covered in full regardless of whether you’ve met your deductible. And your deductible resets every year.
So with an HDHP, you’re taking on the risk of higher out-of-pocket costs upfront. One reason the plans may make more sense is if you tend to have low medical expenses and seldom see a doctor. With a chronic condition, on the other hand, a lower deductible may be a better choice.
HDHPs do impose annual limits on your out-of-pocket expenses, and those may be lower than the caps for individual and employer plans with lower deductibles.[3, 4] In 2022, the HDHP out-of-pocket max is $7,050 for an individual plan, or $14,100 for a family plan. Your deductible, copayments and coinsurance count toward that limit, but premiums and out-of-network services do not.
How health savings accounts or HSAs factor in
If you have an HDHP, you can typically contribute to a health savings account (HSA), which is another thing to take into consideration as you shop for a health plan. HSAs let you set aside money on a pre-tax basis to pay for qualified health care expenses, including your deductible, coinsurance and many other health services. Your employer may also help fund your HSA, though you get no tax benefit for that contribution.
In 2022, you can contribute up to $3,650 to an HSA if you have an individual HDHP, and up to $7,300 with a family plan, and those contributions are in pre-tax dollars. If you are 55 or older, you can put in an extra $1,000.
Because unused funds roll over from year to year, you can build up your HSA to cover future health care costs, invest the balance and enjoy tax-free investment gains. Plus, withdrawals to pay for qualified medical expenses are tax-free.
Pros and cons of HDHPs
Lower monthly premiums
Allows contributions to a tax-free HSA
Can help healthy individuals save money on health care
You pay more out-of-pocket before coverage kicks in
Can be expensive for those with chronic health conditions
Should you get an HDHP?
An HDHP can make sense if you seldom see a doctor and you’re willing to use the pricing comparison tools that many HDHPs provide to find lower-cost health care options.
“Prices can vary so much, even for the same service and the same community,” says Kullgren. “If people use that information to make health care decisions, they can save money on what they pay out-of-pocket.”
However, if you have a chronic health condition or otherwise rely on your health insurance frequently, the out-of-pocket costs may be significantly higher than what you’d pay with a lower-deductible plan due to the higher deductible. And if you can’t afford to cover the full deductible, that could lead to financial strain, avoiding important medical appointments or even medical debt.
To decide if an HDHP is right for you, look at your health care costs from previous years, including what you spent on prescriptions, how often you saw a doctor, and any costs associated with chronic health conditions. Then see if you would save more by paying a high deductible and lower premiums or if it makes more sense to pay more in premiums and have a lower deductible.
Talking to your doctor about your future health outlook and your insurance options can also be useful. “Health care is increasingly expensive,” says Kullgren. “It’s really important to consider one’s own health and financial situation, and get help when you need it.”