If you have the option of buying a high-deductible health plan (HDHP), should you take it? Nearly 4 in 10 Americans between the ages of 18 and 64 do, according to the Centers for Disease Control and Prevention.
But there are trade-offs. What you save each month in lower premiums you run the risk of paying for later in higher deductibles. For that balance to work out in your favor, you’ve got to be aware of all the high-deductible health plan pros and cons.
What Is a High-Deductible Health Plan?
Sometimes called “catastrophic plans,” HDHPs work like any other health policy: They include monthly premiums and a deductible, the amount you have to reach before nonpreventive coverage kicks in. The difference lies in how the fees shake out between premiums and deductibles.
Like you might have guessed already, high-deductible plans have more costly deductibles than standard- or low-deductible plans, which means you’d have to pay more all at once if, say, you broke your arm or became seriously ill. But lower premiums, an attractive feature of HDHPs, can offset that cost by allowing you to pay less month to month. If you’re fairly healthy and only want coverage in case of an emergency, then the low monthly payments could make an HDHP a smart option for you.
High-Deductible Health Plan Pros and Cons
- Lower monthly premiums.
- Access to a health savings account (HSA) to use pretax dollars for health expenses.
- Higher deductibles, which means a higher lump sum for unexpected health events.
- Higher “out-of-pocket” maximums, in some cases. This means that even after you hit your deductible, you might have to pay a heftier percentage of care (what’s known as coinsurance) than you would with a higher-premium, lower-deductible plan.
How to Know if a HDHP Is Right for You
Generally, HDHPs are the right choice for younger and healthier people — that is, those who don’t need to see the doctor beyond preventive care like checkups and flu shots. More than 60 percent of HDHP policyholders are 44 or under.
Age shouldn’t be your only consideration, though. Consider these factors and how they might play into how far through your steep deductible you’re likely to get.
- How many prescription medications do you take?
- Do you have children? If so, how often do they get sick?
- Are you planning on having a baby or getting surgery in the near future?
All of these represent costs you yourself could have to cover for longer with a high deductible. Then again, they might be nonissues for you. If you don’t expect to have a lot of medical needs beyond preventive care, HDHPs can give you basic coverage with a low monthly cost.
Adding an Extra Layer of Protection: HSAs and Supplemental Policies
What if you like low monthly premiums but you’re unnerved by the idea of having to pay a large lump sum if something goes wrong? Health savings accounts and supplemental coverage can help bridge the gap for those out-of-pocket costs, giving you extra cash in a pinch.
- HSAs. If you have an HDHP, you may qualify for a pretax account called a health savings account, which acts as a debit account for health expenses and rolls over from year to year. By law, individuals can deposit up to $3,450 in pretax funds to their HSA each year to pay for medical expenses like copays, doctors’ bills and health supplies.
- Supplemental insurance plans. Think of a supplemental plan as your HDHP’s wingman: These plans offer backup in all the right places. Between fixed indemnity, critical illness and accident plans, supplemental policies pay cash for specific illnesses, injuries and hospitalizations. You can use that cash for whatever you need, from covering the mortgage or groceries to paying the deductible of your HDHP.
Buying an HDHP requires careful thought and planning. The low monthly payments could save you some serious money over time, but if you find yourself in the middle of a medical emergency without an HSA or supplemental insurance plan, your high deductible could be a blow to your finances. Weigh out the pros and cons yourself — only you can know for sure which option fits your situation.