Your Comprehensive Guide to High Deductible Health Plans

If the cost of traditional health insurance plans has you searching for a cheaper alternative you might want to consider a High Deductible Health Plan (HDHP). These plans cover most if not all of the medical treatments and services traditional plans cover and they usually require lower monthly premiums. So if you’re looking to lower your monthly health insurance cost, an HDHP might be a good option for you, depending on your situation.

Read on to learn more.

According to the IRS, an HDHP is defined as a health insurance plan with specific minimum deductibles and out-of-pocket maximums. They are:

For 2023:

• $1,500 minimum deductible for individual plans

• $3,000 minimum deductible for family coverage

• $7,500 out-of-pocket maximum for individual plants

• $15,000 for family plans

For 2024:

• $1,600 minimum deductible for individual plans

• $3,200 minimum deductible for family coverage

• $8,050 out-of-pocket maximum for individual plants

• $16,100 for family plans

You can purchase an HDHP through your employer if it offers an HDHP as part of its benefits package or in the private market. The government-sponsored healthcare exchanges also offer a range of HDHPs at Healthcare.gov. Typically, you can only sign up for an HDHP during the open-enrollment period.

The exceptions are if you’ve experienced one of the following qualifying life events:

• Marriage,
• Divorce,
• Birth of a child,
• A death in the household,
• Changes in residence (e.g. moving zip codes, leaving incarceration, moving to or from a shelter to or from traditional housing)
• Loss of employment,
• Loss of health insurance,
• Change in employment,
• Becoming a US citizen,
• Changes in your income that affect the coverage you qualify for,
• Gaining membership to a federally recognized tribe.

If the words “high deductible” scare you, fear not. The Affordable Care Act (ACA) requires that preventative care by in-network providers is 100% covered regardless of whether you’ve met your deductible. Here are examples of those services:

Adult Preventative Health Services Covered Before Deductible

• Aspirin use to prevent cardiovascular disease for adults of certain ages. Blood pressure screening.
• Cholesterol screening for adults of certain ages or who are at higher risk.
• Colorectal cancer screening for adults aged 50 to 75.
• Depression screening.
• Diabetes (Type 2) screening for overweight obese adults aged 40 to 70.
• Immunizations like the flu shot, Hep A, Hep B and Measles.
• Abdominal aortic aneurysm: one-time screening for men of specific ages who are current or past smokers.

To see a complete list, please visit Healthcare.gov.

Women's Services Covered Before Deductible

• Routine anemia screening.
• Breastfeeding support and counseling from trained providers.
• Access to breastfeeding supplies like pumps for pregnant and nursing women.
• FDA-approved contraception, sterilization procedures and patient education and counseling for women with reproductive capacity. Note: health plans purchased through religious employers may be exempt.
• Mammograms every 1 to 2 years for women over 40.
• Cervical cancer screening every 3 years for women aged 21 to 65.
• Osteoporosis screening for women over age 60 depending on risk factors.
• Well-woman visits to get recommended services for women under 65.

To see a complete list, please visit Healthcare.gov.

Children's Services Covered Before Deductible

• Autism screening for children at 18-24 months. Vision screening.
• Height, weight and BMI screening.
• Behavioral assessments.
• Blood pressure screening.
• Depression screening for adolescents.
• Developmental screening for children under age 3.
• Hearing screening for all newborns.
• CDC-recommended vaccines like whooping cough, flu, measles, chickenpox, etc.

To see a complete list, visit Healthcare.gov.

One of the benefits of purchasing an HDHP is the ability to contribute to a Health Savings Account (HSA). An HSA is a savings account into which you contribute pre-tax money to pay for qualified medical expenses. You own your contributions so whatever you don’t spend rolls over from year-to-year and moves with you if you change employers.

In order to qualify to open and contribute to an HSA, you must also be enrolled in an HSA-eligible HDHP. An HSA-eligible HDHP as defined by the IRS is a health insurance plan with:

1. A minimum annual deductible of $1,500 for individual plans and $3,000 for family plans in 2023 and $1,600 for individual plans and $3,200 for family plans in 2024.
2. A maximum out-of-pocket maximum of $7,500 for individual plans and $15,000 for family plans in 2023 and $8,050 and $16,100 in 2024.

Note: out of-pocket maximums include copayments, deductibles and other expenses, but DO NOT include premiums.

In order to contribute to an HSA, you must meet the following criteria:

1. A qualifying HDHP must be your only health insurance. You can, however, have supplemental insurance that covers: dental, vision, workers’ compensation, disability, long-term care and accidents.
2. You are under the age of 65.
3. No one else can claim you as a dependent on their tax returns.
4. You’re not covered by Medicare.

Some other rules that apply to HSAs are the following:

• Annual contribution limits. The IRS limits the amount you can contribute to your HSA every year. If you have an individual HDHP, you can contribute up to the maximum allowed for individual plans which is $3,850 in 2023 and $4,150 in 2024. If you have a family HDHP, you can contribute up to $7,750 in 2023 and $8,300 in 2024.
• If you are aged 55 or older you can contribute an additional $1,000 annually, which is known as a "catch up contribution."
• Anyone can contribute to your HSA. That means you, your employer, your spouse, your child, your neighbor. But all contributions count toward your annual max.
• You can’t contribute to an FSA and an HSA at the same time. You can, however, contribute to an HSA and a limited purpose FSA or dependent care FSA at the same time.
• In order to contribute to your HSA in a given month, you must have had an active HDHP on the 1st of that month.
• As long as you have an active HDHP by December 1st, you can contribute up to your annual maximum for the year.
• You can change your monthly contribution amount at any time.
• All contributions to your HSA are free of federal income tax (and state income tax in most states). Your contributions also grow tax-free and your distributions are tax-free as well as long as you use them to pay for qualified medical expenses.
• If you’re under the age of 65, you must use your distributions for qualified medical expenses. If you use your HSA money for anything else, you will pay income tax on those distributions as well as a 20% penalty.
• If you’re over the age of 65, you can use your HSA for anything you want. Distributions for qualified medical expenses remain tax-free. Distributions for other expenses are subject to the applicable income tax rate.

HDHPs can give you greater flexibility, choice and even help you save for the future. Here are the specific ways HDHPs benefit different groups: Single people. You only spend your healthcare dollars on the treatments and services you need. Traditional health insurance plans strive to cast the widest net possible when compiling their health plans. Which means participants in those plans must pay higher premiums for that extensive coverage. But as a single person, you might not need coverage for all of those treatments and services.

Buying an HDHP instead will allow you to save money on your monthly premiums, which you can then put toward paying for the health services you actually need.

1. Healthy people If you rarely use the health system except for preventative care like well visits and immunizations, then you could be overpaying for insurance coverage with a traditional health plan. Since HDHPs cover the majority of preventative care prior to the deductible being met, you might not even need to use the money you save on monthly premiums for health-related expenses. If you’re able to save it, you can put it into an HSA to get a jumpstart on saving for retirement.
2. Families One of the biggest benefits to HDHPs for families is being able to save up to the contribution limit in pre-tax dollars in your HSA every year. These contributions never expire so if you primarily use the health system for well-visits and immunizations, both of which are covered prior to satisfying your deductible, you could build a solid nest egg over the years. You could grow those savings even further if you invest them in the market (the average stock market return for 10 years is 9.2%). Another great feature of HSAs is that you can use your contributions for any of your dependents, regardless of whether you have a family HDHP or an individual HDHP. Just keep in mind, your contribution maximum is determined by your health plan.
3. People nearing retirement It’s estimated that the average 65 year old couple retiring now will spend over $300k on healthcare in retirement. Saving money now in your HSA (with the additional $1,000 catch-up allowance) to pay for those health-related expenses tax-free is a great way to plan for your future.
4. Young people Young people tend to use the health system mostly for preventative care. This makes HDHPs ideal for them. It also allows them to get a jumpstart on saving for retirement or larger health-related expenses in the future by contributing to an HSA.

HDHPs and HSAs are paired together because they function in complementary ways. Once your HDHP coverage begins, you can open your HSA and begin contributing. As long as your coverage started by the 1st of December, you can contribute up to the maximum amount allowed for your plan type.

As soon as you deposit your money into your HSA, it’s available to use. But you can only use contributions that have already been made. Not future or promised contributions. Here are some additional ways HDHPs and HSAs work together.

HDHPs and HSAs Provide Flexibility

Pairing your HDHP with an HSA gives you flexibility in how you spend your money as it relates to healthcare. HDHPs have lower monthly premiums than traditional health insurance plans because they don’t cover as many treatments or services as completely as traditional plans do.

They might require a copay for office visits or higher out-of-pocket costs for certain treatments and services than a traditional plan. But if these treatments and services are not something you need, then an HDHP allows you to better target your spend.

You can put the money you save monthly into an HSA tax-free and use it for the treatments and services you actually need, not the ones your health insurance provider thought were best. You can also adjust the amount you contribute from month-to-month. So if you have extra cash one month, or you know you have a health expense coming up, you can budget according to your needs.

HDHPs and HSAs give you a tax-advantaged way to pay for your medical costs

If you have an individual HDHP, your annual deductible is at least $1,500 in 2023. But you can contribute up to $3,850 to your HSA tax-free. That means by having an HDHP and HSA combination, you can pay for your deductible and have $2,350 left over for other medical expenses, tax-free!

If you have a traditional health insurance plan, all of your out-of-pocket costs will be after-tax, including your deductible. Which means buying an HDHP and contributing to an HSA could save you up to 30% on your medical costs, depending on your tax bracket.

You can even contribute your annual maximum at the beginning of the year, pay your deductible, then spend the rest of the year knowing you: a) have money available to pay out-of-pocket expenses and b) your health insurance will be picking up its contracted percentage of the costs.

HDHPs and HSAs Enable You to Save for Retirement

The unique qualities of the HSA: it’s triple tax-benefit, the fact that it rolls over from year-to-year and that you can invest your contributions (if you have a Self-Directed or Guided Portfolio account), make it a great way to save for retirement. As long as you can save more than you spend and you invest your money (remember the stock market’s average annual return is 9.2%).

HDHPs and HSAs allow you to maximize insurance coverage for dependents

Even if you only have an individual HDHP, you can still use your HSA to pay for the health costs of your dependents. That means if your child is in college and has student health insurance through the university, you can still pay for their out-of-pocket costs with your HSA contributions. Or, if your children need more comprehensive coverage but you don’t, you can purchase a traditional family plan for them through your spouse’s employer, an individual plan for yourself, and use your HSA contributions to pay for their out-of-pocket medical expenses.

Now that you know the ins and outs of HDHPs, their benefits and how they work with HSAs, it’s time to see how they stack up against traditional health insurance plans.

Before we compare health insurance options, there are several things to note:

• The term “high deductible health plan” simply refers to a plan’s deductible level. As such, HDHPs can be structured like PPOs or HMOs except that the deductibles are higher and premiums lower than you would see in a traditional health plan. Many factors can affect how much your health plan costs including: location, age, the number of people on your plan, whether you’ve purchased your plan from the private market or through your employer, and whether or not you smoke. The following cost averages are for the year 2021.

HDHPs vs PPOs

Preferred Provider Organizations (PPOs) are health insurance plans that offer a larger group of in-network of medical providers and hospitals, as well as the option to see out-of-network providers, although at a lower coverage level. PPOs don’t require participants to have a primary care provider and they allow specialist visits without a referral (although some tests and services like MRIs still need a provider referral).

All this flexibility comes at a cost. PPOs typically have the highest premiums of the health insurance options as well as a deductible that participants need to meet before their coverage kicks in. But the majority of preventative care is 100% covered prior to the deductible being met.

HDHPs can be structured as a PPO, meaning they can offer the same flexibility in terms of providers and out-of-network coverage (at lower levels), and the same freedom to specialists without a referral. HDHPs structured as PPOs don’t require participants to name a primary care provider but will require a provider’s referral to get certain tests and services like MRIs (just like PPOs). Also like traditional PPOs, the majority of preventative care is 100% covered under an HDHP, prior to participants meeting their deductible.

What’s different is how participants pay for their care. For PPOs, participants pay higher premiums for lower deductibles and out-of-pocket maximums. For HDHPs, participants pay lower premiums for higher deductibles and out-of-pocket maximums.

If you’re purchasing your health insurance plans in the private market, you can expect to pay between 300-500% more per month for your premium. The average deductibles remain constant.

HDHPs vs. HMOs

Health Maintenance Organizations (HMOs) are health insurance plans that offer a smaller group of in-network medical providers and hospitals than PPOs. They require you to maintain a primary care provider and that you get a referral from said provider prior to seeing a specialist, getting a test done or receiving most types of care.

HMOs do not typically cover out-of-network care at any level with the exception of cases of emergency. HMOs are the most restrictive of the traditional health plans but are also the lowest in terms of monthly premiums. Most HMOs don’t have an annual deductible. Since HDHPs are defined by how much the plan costs, and HMOs are defined by the network of providers and how plan participants access care, an HDHP can be structured as an HMO. Like we saw with PPOs, what’s different is how participants pay for medical services.

According to the Kaiser Family Foundation, 52% of HMO participants have a health plan with no annual deductible. While traditional HMOs may not have an annual deductible, they do have cost-sharing (i.e. co-insurance and copayment) requirements of plan participants. Those cost-sharing obligations come out of your after-tax income. If you have an HDHP, regardless of if it’s structured like a PPO or HMO, you can theoretically pay for all of your medical expenses pre-income tax. As long as you contribute enough to your HSA to cover your medical costs.

If you’re purchasing your health insurance plans in the private market, you can expect to pay between 300-500% more per month for your premium. The average deductibles remain constant.

HDHPs vs. Traditional Health Plans

Since HDHPs can be structured as either a PPO or an HMO, the primary difference between HDHPs and traditional health insurance plans is the way participants pay for care and for whom the structure benefits.

Traditional health insurance plans attempt to cover the widest range of medical treatment and services while requiring plan participants pay a relatively low percentage of the costs. They typically have lower deductibles than HDHPs but premiums are higher. And while you pay your monthly premium pre-tax, other out-of-pocket expenses including your deductible, copays, etc. are paid with post-income tax money. These types of insurance plans benefit people who use the medical system a lot. Whether they have a condition that requires seeing a specialist or prescription drugs or other treatments, or they have someone in their family who requires regular medical treatment, or they’re elderly, these people benefit from having more extensive health insurance coverage.

HDHPs, conversely, require plan participants to pay a greater percentage of their care (preventative care not included), as well as a higher annual deductible, in exchange for a lower monthly premium. Plan participants have the option to contribute money to an HSA, pre-tax, so they can save for qualified medical expenses and retirement. An HDHP and HSA pairing could result in participants paying for all of their medical expenses (premium, deductible and subsequent medical costs), pre-tax. Provided, of course that the plan participants can save enough money in their HSA to pay for their out-of-pocket expenses.