If this is your first year on a high deductible health plan (HDHP), you're not alone. High deductibles are becoming increasingly common every year. More than half of all Americans with employer-based coverage now shoulder a deductible that’s $1,000 or more.
Below is a definitive guide to everything you need to know about HDHPs—from federal guidelines to benefits and drawbacks. Plus, we’ll show you the best ways to manage your healthcare costs and save money, even with a deductible that’s on the rise.
What makes an HDHP
In general, an HDHP has a higher deductible and lower premium than a traditional health insurance plan—but this can mean practically anything. Below is a deep dive into all the different features that define an HDHP.
A deductible is the amount of money you must pay in a year for healthcare services before your health insurance company pays a single dollar (except when it comes to preventive care—more on that below). For traditional health insurance plans, deductibles typically range from a few hundred dollars to about $1,000. But for HDHPs, your deductible will likely be much higher.
Each year, the federal government determines a minimum threshold that must be met by your deductible to be considered an HDHP. There’s a different threshold for individual plans and family plans. Below are the thresholds for the past two years.
If you have individual coverage (meaning your health insurance is just for you and no other family members) and your deductible is $1,300 or more, your plan qualifies as an HDHP this year. If you have family coverage, your deductible must be at least $2,600 to qualify as a HDHP.
A premium is the amount of money you must pay each month to maintain coverage. If you have health insurance through your employer, your premium is likely taken out of your paycheck each month or each pay period.
Because HDHPs come with a rather hefty deductible—meaning you’re liable for more costs up-front—they also tend to come with lower premiums. The cost of your premium could be more than 30% lower with an HDHP, according to Mercer, which found that employees contribute $84 per month on average for individual coverage under an HDHP, compared to $132 for PPO coverage (a type of plan that usually has lower deductibles).
Co-pay and co-insurance
As with most health insurance plans, an HDHP usually requires a co-pay and/or co-insurance that you must pay even after you’ve met your deductible. A co-pay is usually a fixed amount, whereas a co-insurance is a percentage of the total cost. Co-pays and co-insurance rates vary a fair amount, depending on your insurer and the structure of your specific plan.
Many insurance plans have what’s called an out-of-pocket maximum, which is a limit on the total amount of money you have to pay for covered healthcare services in a year before your insurer pays 100% of your costs.
HDHPs must not exceed a maximum out-of-pocket limit set by the federal government. This is to make sure that patients’ cost liability is limited. Below are the maximum out-of-pocket limits for individual and family plans for the past two years.
Your out-of-pocket maximum doesn’t take into account the money you pay towards premiums or healthcare services that aren’t covered by your plan (aka out-of-network care). It does take into account the money that goes toward your deductible, as well as any co-pay and co-insurance costs after that.
Some HDHPs have what’s called an integrated deductible. If you have an integrated deductible, all of your out-of-pocket expenses for various healthcare policies can count toward the same deductible. This is often the case if you have a main medical insurance plan with a high deductible and a separate prescription drug policy. This makes it easier to meet just one deductible, rather than two.
Benefits and drawbacks of a HDHP
As with any health insurance plan, an HDHP has both pros and cons. Below is a brief overview of the benefits and drawbacks that people with HDHPs most often experience.
Benefits of a HDHP
- Lower premiums. Your cost of coverage could be substantially lower with an HDHP. Mercer found that employees, on average, save more than 30% on premiums, paying $84 per month on average for individual coverage (compared to $132 for a PPO) and $321 per month on average for family coverage (compared to $467 for a PPO).
- Wider networks. Unlike with a HMO (a type of plan that generally has lower deductibles and a very limited network of doctors and hospitals you can go to), HDHPs generally offer a lot of choice when it comes to picking a doctor or hospital. This can be a huge plus for people who want flexibility when choosing care.
- Ability to open a health savings account (HSA). You can only use a HSA if you have an HDHP. This allows you to pay for healthcare expenses with pre-tax dollars, which can add up to huge cost savings. We’ll go into more detail on HSAs below.
Drawbacks of a HDHP
- Possibility of higher out-of-pocket costs. With an HDHP, you’re responsible for paying a relatively large amount of money before your insurance will pay a single dollar. If you utilize healthcare services frequently, this means you could end up with higher out-of-pocket costs than if you had a traditional health insurance plan.
- Financial incentive to avoid care. Because you’re responsible for 100% of your healthcare costs until you meet your deductible, you may feel pressure to forgo or delay healthcare services with an HDHP. Research has shown that many people with HDHPs do postpone care.
How to make the best of a HDHP
With any insurance plan, it’s important to mindful of healthcare costs. But if you have an HDHP, avoiding costly pitfalls is essential, since your wallet is ultimately on the line. Below are three actionable tips to save money and still get the high quality healthcare care you need.
Take advantage of free preventive healthcare
Under the Affordable Care Act, there are certain preventive healthcare services that must be covered without cost-sharing. This means your insurance company is required to pick up 100% of the cost for these services, so they’re free for you to utilize. Some of the most common covered preventive services include:
- An annual check-up with your primary care doctor
- Screenings for blood pressure, cholesterol, and STIs
- Screenings for certain cancers
- Various vaccines, including all those recommended for children
You can see a full list of 100% covered preventive services here.
Set aside the full amount of your deductible, if you can
If you have the financial means to do so, setting aside the full cost of your deductible means you could comfortably cover any healthcare expenses that arise. If you can, you could even set aside the full cost of your out-of-pocket maximum—but this requires a lot of disposable income.
Even if you can’t set aside that much money ahead of time, try to save as much as possible. That way, you’ll have some savings to fall back on in case of a healthcare emergency.
Shop around for low cost, high quality care
If you have an HDHP and need to see a specialist or have a big medical procedure, you could end up paying the full cost out-of-pocket. Healthcare costs vary a lot by hospital and doctor, so it’s important to shop around and look for the highest quality, lowest cost care in your area.