High deductible health plan — What’s an HDHP?

A deductible is the amount of money you have to pay out-of-pocket for health care services before your health insurance plan begins to pay. High-deductible health plans offer low premiums with the understanding that members will pay more out-of-pocket costs if they need care until they reach the plan’s deductible. High deductible health plans (HDHPs) can be an option if you’re looking for health insurance with low premiums. 

However, those lower premiums come with higher deductibles and out-of-pocket costs. So, you wind up paying more for health care services.

What is a high deductible health plan? 

A high deductible health plan (HDHP) is a type of insurance that requires policyholders to pay a high deductible before their insurance coverage kicks in. HDHPs are often paired with a health savings account (HSA), which allows policyholders to set aside tax-free money to cover their healthcare costs. HDHPs offer a number of advantages, including lower monthly premiums and the ability to save money on taxes. 

According to the IRS, HDHP is a health plan with a deductible of at least $1,400 for an individual or $2,800 for a family. 

However, it also comes with some risks, such as the potential for high out-of-pocket costs if you have a major health event. Before deciding on an HDHP, be sure to carefully consider your needs and budget to make sure this type of plan is right for you.

How does a high deductible health plan work? 

In general, your health plan begins paying for covered medical expenses once you’ve met your deductible, which is the amount you pay out of pocket. This also applies to conventional plans. 

Your deductible is the amount you must pay out of your own pocket before your health insurance company begins paying a portion of your medical expenses. The amount of your deductible is determined by the plan you select. If you pick a plan with a higher deductible, you may have to pay higher out-of-pocket in order to reach your deductible. 

What is a good deductible for health insurance? 

When it comes to health insurance, there is no one-size-fits-all deductible. The right deductible for you will depend on a number of factors, including your health history, and financial situation. If you are healthy and have very few health care needs, you may want to choose a high deductible plan in order to save on premiums. On the other hand, if you have chronic health problems or require frequent medical care, a low deductible plan may be a better option.

The health insurance company usually sets a maximum limit on how much you will have to pay in deductibles per year. For example, if your health insurance plan has a $2,000 deductible, you will have to pay the first $2,000 of medical expenses yourself. After you have paid the deductible, the health insurance company will begin to pay its share of the costs. The size of your deductible impacts your premium, so it’s important to choose a deductible that you can afford.

Ultimately, the best way to determine what is a good deductible for health insurance is to speak with a licensed agent or broker who can help you evaluate your options and find a plan that meets your needs. 

Are HDHPs leading to lower health costs? 

A key tenet of an HDHP is that it can reduce health care costs — both for employers and employees. However, our Insure.com survey found that the vast majority of people with a high deductible plan haven’t seen lower healthcare costs.

In fact, 49% said health plan costs are about the same with a high-deductible plan and 40% said health costs have actually increased. Only 12% said health insurance costs have decreased since enrolling in a high-deductible plan.

One drawback of an HDHP is that paying more for doctor appointments and tests may make people delay care. We found that about one-third of HDHP members surveyed said they’ve delayed care because they didn’t want to pay the high deductible. Delaying necessary care could lead to more health problems and higher health bills later. 

 

How much are HDHP deductibles? 

The average deductible for an employer-based plan’s single coverage is $1,669 in 2021, while the average deductible for HDHPs is $2,349 for a single plan, according to the Kaiser Family Foundation. 

Insure.com found that respondents’ single-plan deductibles are usually between $1,701 and $4,000. That’s well above the $1,400 threshold for a plan to be considered a high deductible. 

Here are what the survey respondents said single coverage deductibles are: 

• Between $1,701 and $2,499 — 25%
• $2,500-$4,000 — 13%
• More than $4,000 — 4%
• Less than $1,700 — 44%

These deductibles are significantly higher than PPO and health maintenance organization (HMO) plans. However, those higher costs are offset by lower premiums.

 

How does deductible work for health insurance?

Deductibles for health insurance are the cost of covered health care services prior to your insurance plan beginning to pay. For example, if your deductible is $2,000, you must pay the first $2,000 of covered expenses yourself.

After you meet your deductible, you usually only pay a copayment or coinsurance for covered services. The rest of the cost is paid by your insurance company. Copayment is a fixed amount you pay for a covered health care service after the deductible is paid, whereas coinsurance is the percentage of covered health care service you pay after meeting your deductible. 

What is an HSA? 

HSA is a type of savings account that permits you to set aside money on a pre-tax basis to pay for qualifying medical expenses. You may be able to reduce your overall healthcare expenditures by using untaxed dollars in an HSA to cover deductibles, copayments, coinsurance, and other charges. Funds kept in an HSA are generally not used to pay insurance premiums. 

 

What qualifies as a high deductible health plan for an HSA?

 HDHP-qualifying plans must have a deductible of at least $1,400 for individuals and $2,800 for families in 2022. That threshold increases a little bit each year.

High deductible health plan with an HSA 

A health savings account (HSA) can be used in conjunction with a high deductible plan (HDHP) to help you pay for medical expenses without paying federal taxes.

You are free to use the funds in HSA at any time for a qualified medical expense. But you can only contribute to an HSA if you have a High Deductible Health Plan (HDHP) — generally, a health plan that only covers preventive services before the deductible — and it is authorized by your employer.

How much are people contributing to HDHP health savings accounts?

HSAs are a way to save money for your health care, but we found that many with HSAs aren’t contributing to their accounts. 

Here’s how much they’re putting aside: 

• Less than $500 — 9%
• $501 to $1,000 — 10%
• $1,001 to $2,000 — 10%
• $2,001 to $3,000 — 7%
• More than $3,000 — 4%
• Nothing — 36%

Employers can also contribute money to savings accounts to help employees pay for health care. However, we found that 33% of respondents said their companies don’t contribute to their HSAs. Here’s what employers are contributing: 

• Less than $500 — 7%
• $501 to $1,000 — 11%
• $1,001 to $2,000 — 8%
• $2,001 to $3,000 — 3%
• More than $3,000 — 4%
• Nothing — 43%

 

What happens to my HSA if I no longer have an HDHP? 

You can take your HSA with you when you leave an employer, but you can’t contribute to an HSA again unless you have an HDHP. However, you can tap into an HSA to help pay for care regardless of your current health plan once you set up an HSA.

High-deductible plans in the ACA marketplace

The Affordable Care Act (ACA) exchanges’ high deductible health plans are called Bronze and Silver plans. 

A Bronze plan picks up 60% of your health care costs and you handle the remaining 40%. A Silver plan pays 70% and you pay 30%. Much like a high deductible plan in the employer-based market, Bronze and Silver plans offer lower premiums with higher out-of-pocket costs. 

Another option for people who want low premiums is short-term health plans. These plans offer limited coverage and low costs. For instance, you may have trouble finding a short-term plan with maternity, mental health, or prescription drug coverage. 

Short-term plans don’t meet the ACA coverage requirements of what the federal government considers health insurance. 

Pros and cons of high deductible health insurance

 

The type of health plan you get depends on your health status, finances, providers, and what you want from your plan. An HDHP can be the right plan if you don’t expect to need much health care over the next year. However, if you have a growing family or expect to need medical services, you may want to find a plan with lower out-of-pocket costs. 

Here are the pros and cons of HDHPs: 

Pros

• Lower premiums
• Offers the same benefits and coverage as other plans like PPOs and HMOs
• Health savings accounts let you save for your health care tax-free
• Employers may contribute to savings account to help you pay for care

Cons

• Higher out-of-pocket costs
• You pay for all of your health care until you reach the high deductible and then pay a portion of the bill
• You might delay care because of costs
• Out-of-pocket costs can be expensive for people with chronic illnesses

High deductible health plan vs PPO

HDHP is a suitable health plan for people who are in good health, who do not expect to require health care coverage, except when they face any serious health emergencies. Whereas PPO plans can be beneficial for people who expect frequent medical care or want to be prepared for any unexpected medical expenses. 

The table below lists a few other differences between the High Deductible health plan and PPO.

High-deductible health plan advice

HDHPs can be a cost-effective solution, but you’ll want to follow this advice to get full advantage of your plan. 

• Don’t delay care: Although HDHPs have higher out-of-pocket costs than other health plans, you should not put off health care or preventive care. Avoiding care can prove more expensive later on and affect your quality of life. 
• Shop around: Be sure to shop around for the most cost-effective health care services with good quality ratings. Use online price comparison tools for providers and prescription drugs offered by the health plans to make your decision.
• Stay in-network as much as you can: Understand your provider network before signing up for a health plan and check with your providers to confirm they take the plan. This is because in-network providers, who are covered in your plan, will cost less than getting out-of-network care. 
• Review your health care bills: Make sure to check each medical bill to verify if your plan is covering what is required. If not, you can check with the insurer and appeal a charge, externally or internally. 
• Take advantage of your HSA: An HSA is a great way to save for your health care. Try to contribute the maximum amount to have tax-free money set aside for your health care. Remember that you can carry over money to the next year, so there’s no need to spend everything in one year. 

Les Masterson contributed to this story.

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