Q: Who should consider a high-deductible health insurance plan?
A: If you’re healthy and have some money in the bank, you might want to consider a high-deductible health plan (HDHP).
HDHPs typically have lower premiums than traditional health plans because of the high deductible, and they protect you from catastrophic health events. But HDHPs are not always the lowest-priced plans available. Other health plans — that also have high deductibles — sometimes have lower premiums, despite offering benefits before the deductible is met (all health plans — including HDHPs — cover preventive care before the deductible is met. But HDHPs don’t cover anything else until you’ve met the deductible).
If you’re in good health, rarely need prescription drugs, and don’t expect to incur significant medical expenses in the coming year, you might consider an HDHP. In trade for lower premiums, HDHPs require you meet your deductible before you get any coverage for treatment other than preventive care. In general, people who know that they are going to need extensive medical treatment in the coming year might be better served by a traditional plan with a lower deductible and copays – despite the fact that the premiums will be higher. However, that’s not always the case. A person who knows that they will need extensive medical care and will meet the health plan’s out-of-pocket maximum regardless of the plan, might be better off with a lower-priced plan with a higher deductible, once total costs (including premiums) are tallied. There’s no one-size-fits-all answer.
If you do decide to enroll in an HDHP, one of the benefits is that you can establish a health savings account (HSA) and contribute up to $3,450 to the account in 2018 if you have self-only coverage under the HDHP. The HSA contribution limit is $6,850 if you have an HDHP with family coverage (note that this is lower than the limit the IRS initially set for 2018, but the new limit was clarified in a March 2018 IRS bulletin).
You can deduct your HSA contributions when you file your tax return, without having to itemize your deductions. The money in your HSA rolls over from one year to the next – there’s no “use it or lose it” provision with an HSA. You can use the money in your HSA to pay your deductible and other out-of-pocket expenses, as well as any qualified medical expenses that aren’t covered by your health plan. Because your HDHP doesn’t provide any non-preventive coverage until your deductible is met, you’ll need to have some way of paying the deductible in case you need medical treatment other than preventive care. An HSA is a good solution for making sure you have the funds available to cover your deductible if necessary.
Since HDHPs are typically among the lower-priced health plans available, many people opt to purchase an HDHP, establish an HSA, and then contribute the amount they’re saving in premiums to the HSA each month. So if you’re paying $500/month for an HDHP and you’d otherwise be paying $650/month for a traditional health plan with copays and a lower deductible, you put the $150 savings into the HSA each month instead of paying it to your insurance company. If and when you need to meet your deductible, the money is there for you to use. But if you don’t end up needing to meet your deductible, the money in your HSA is still yours to keep — it’s always tax-free to withdraw it for medical expenses, even if you don’t keep your HDHP long-term.
Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.