What is a high-deductible health plan?
How high-deductible health plans work
High-deductible health plans (HDHPs), sometimes called consumer-directed or consumer-driven plans, have higher deductibles than traditional health plans. Because you take on more of the out-of-pocket costs early on, your monthly insurance bill is usually much lower.
Your deductible is the amount you pay out-of-pocket before your health insurance starts paying its share. If you get sick or injured, you pay for your care until you reach that higher deductible amount. Once you reach your deductible, your insurance steps in to help cover the rest, though you may still have to pay copays or coinsurance.
Because of the high deductible these plans are typically best for people who don't need to go to the doctor often and don't take many daily medications.
Growing your savings with a Health Savings Account
One of the big benefits of having an HDHP is that it allows you to open a Health Savings Account, or HSA. An HSA is a special, tax-exempt savings account that helps you pay for eligible out-of-pocket medical expenses. By law, only people enrolled in a qualified HDHP can open this type of account.
The money you put into the account is not taxed. If the account earns interest, that money grows tax-free as well. When you use the funds to pay for qualified medical costs, you do not pay taxes on those payments. Plus, there is no "use it or lose it" rule like you might find with other accounts. The money rolls over from year to year. It belongs entirely to you, even if you change jobs or switch your health coverage in the future.
Is an HDHP right for you?
HDHPs are attractive because they generally have lower premiums, but it comes with a tradeoff that you need to account for when looking at your budget and the total cost of the plan.
Your insurance doesn’t kick in until you’ve met your annual deductible. And when you do meet your deductible, you may still have a copay or coinsurance or both. But many plans cover preventive care services at 100% – meaning the plan covers them at no extra cost to you, even if you haven't met your deductible yet.
For people with fairly predictable health care costs, HDHPs can be a great way to control spending on health care. On the other hand, these costs are sometimes hard to predict.
If you end up going to the doctor more often than planned, taking new daily medication, or managing a new long-term health issue, a higher deductible may be harder to manage.
An HDHP can affect your savings, either positively or negatively.
If you need more care than you originally expected, make sure you can cover unexpected medical costs since you'll be responsible for the entire high deductible.
Also think about how an HSA can play into your savings plans. Consider whether the tax and savings benefits of an HSA are worth the potentially higher cost of care.
