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Is a High-Deductible Health Plan Right For You?

WRITTEN BY: Craig Sturgill

UPDATED: MAY 16, 2022 | 3 MIN READ

Choosing the proper health insurance plan can be mind-boggling. Between PPOs, HMOs, and high-deductible plans, it can be difficult to decide which is best.  Let’s take a look at what a high-deductible health plan is and why it could be a good option for you and your family. 

High-Deductible Health Plan Quicklinks

What Is a High-Deductible Health Plan?

A high-deductible health plan is health insurance with lower monthly premiums but a higher deductible. However, not all insurance plans with a high deductible are considered true high-deductible health plans. The government sets specific regulations to define high-deductible plans because it’s the only type of plan that can have a health savings account attached to it.

How does a high-deductible health plan work?

Every month you pay health insurance premiums for your health coverage. This is true with any health plan, including high-deductible health plans. However,  with high-deductible plans, your premium is lower than those of HMO and PPO plans. 

Because you pay less monthly for your high-deductible health plan, you have a higher deductible. This means before the insurance covers the medical expenses you pay your own medical bills until your deductible is met. For example, if you have a $6,000 annual deductible, you pay the first $6,000 of your medical care for the year and then, your health insurance company starts footing the bill.

Free preventive care (in some cases)

Although you have a higher deductible you can typically get preventive care at no cost, even if the annual deductible isn’t met. All marketplace plans offer selective preventative care options at no cost. Private insurance companies have the option of having a co-pay for preventative care services, but they are still covered by your high-deductible health plan before you meet your annual deductible. Preventive care includes (but is not limited to) services such as:

  • Annual check-ups
  • Screenings for different cancers
  • Screenings for hereditary or metabolic diseases
  • Contraception
  • Vaccines and immunizations
  • Screening for depression and other mental health issues

Additionally, the IRS has expanded coverage options for high-deductible health plans in recent years to add pre-deductible coverage for some chronic illnesses and medications. This includes insulins, beta-blockers, SSRIs, and other medications used to treat specific chronic illnesses.

Benefits of a health savings account

Once you enroll in a high-deductible health plan you can open a health savings account. Fund this account with a portion of or the maximum annual contribution allowed by the IRS, tax-free. . Money in a health savings account is used to pay for services before the deductible is met. This includes paying for co-pays, medications, and even over-the-counter medical supplies.

High-Deductible Health Plan Pros and Cons

When considering your insurance options, it is always best to look over the pros and cons of the plan. Here are some important things to consider about high-deductible health plans

Pros of a high-deductible health plan

  • Lower monthly premiums
  • Tax-free health savings account
  • Your health savings account balance rolls over each year so you can save for services you might need later in life
  • Networks aren’t as narrow as those of HMO plans

Cons of a high-deductible health plan

  • Higher deductible
  • Accidents or emergencies could result in high medical bills
  • If you’re managing a chronic illness, your out-of-pocket expenses might be more than you can afford

How Does a High-Deductible Health Plan Work With an HSA?

Since a high-deductible health plan is the only type of health insurance coverage that is eligible for the tax breaks using a health savings plan is a good idea to take advantage of having one. 

The funds in your HSA account can then be used to pay for medical bills you receive before the deductible is met or for services not covered by the insurance plan such as dental or vision. They can also be used to pay for medication or over-the-counter medical supplies.

Setting up an HSA account

To set up this plan, you must find a financial institution that handles this type of account. After you set up the account, money is taken directly from your paycheck, before taxes are calculated, and deposited into the account. 

If you’re self-employed, you make contributions directly into your HSA account whenever you want. But you have to be mindful to not exceed the annual contribution amount.

Using your HSA account

The money in the account can be used at any time to pay for medical expenses before the deductible is met. They can also be used for services not covered by the insurance plan such as dental or vision. In most cases, the financial institution gives you a debit card to use with your HSA account that you can only use for qualified medical expenses. In some cases, you might have to submit receipts and wait for your HSA to reimburse you. 

Limitations and rollovers on your HSA account

The IRS sets a maximum contribution amount for HSAs each year. For 2022, the maximum contribution is $3,650 for individuals and $7,300 for families. The catch-up contribution amount for people age 55+ is $1,000. The amount you contribute does roll over each year, allowing you to save for more expensive medical situations if needed.

High-Deductible Health Insurance FAQs

Who is a high-deductible health care plan best for?

Healthy, young people benefit the most from high-deductible health plans and healthy people who rarely go to the doctor outside of their annual physical exam. They can take advantage of the low monthly premiums and get their annual check-ups and any screenings done at no additional cost or for a small co-pay, depending on their plan. 

What’s the main benefit of a high-deductible health plan?

The main benefit of a high-deductible health plan is the lower monthly premium. This is especially beneficial to young, healthy people who don’t need to visit the doctor often because it saves them money each month. 

What is the main drawback of a high-deductible health plan?

The main drawback to a high-deductible health insurance plan is the high deductible. If you do have health issues requiring regular medical services you have you pay for them out-of-pocket until the annual deductible is met. 

How much does a high-deductible health plan typically cost?

The cost of a high-deductible health plan varies depending on the coverage amount and deductible you select. However, for 2022, the average high-deductible health plan premium for an individual is $7,441 and $21,662 for families. 

What’s considered a high-deductible health plan?

To be considered a high-deductible health plan by the IRS and the government, the deductible must be at least $1,400 for an individual and $2,800 for a family.  Also, the plan must allow for the insured to have a health savings account to cover expenses until the deductible is met.

Finding a Good High-Deductible Insurance Plan

It’s possible to save money with a high-deductible health plan. You just need to find the right one for you. Get health insurance quotes from several companies to ensure you find the coverage you and your family need.