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Lower premium, higher deductible

High deductible health plans, explained.

An HDHP trades a smaller monthly payment for a larger bill when you first use care, and it can unlock a Health Savings Account you keep for life. Here is how the tradeoff actually works out.

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The one line summaryYou pay less every month and more when you get care, your out-of-pocket maximum still caps the year, and a qualifying plan lets you contribute to an HSA that stays yours.

How a plan year works

Four stages of a high deductible year.

Every high deductible plan moves through the same sequence. Knowing where you are in it explains why a bill looks the way it does.

  1. You pay first

    Apart from preventive care, you pay the full negotiated price for covered services until you reach the deductible. Using in-network providers still matters here, because the negotiated rate is lower than the list price.

  2. Preventive care is the exception

    In-network preventive services such as annual wellness visits, recommended screenings, and immunizations are covered with no cost sharing, even before the deductible is met.

  3. Cost sharing begins

    Once the deductible is satisfied, the plan starts paying its share and you pay copays or coinsurance for covered care, exactly as you would on any other plan.

  4. The out-of-pocket maximum caps it

    When your spending on covered in-network care reaches the out-of-pocket maximum, the plan pays 100 percent of covered in-network services for the rest of the plan year.

Side by side

High deductible or lower deductible?

Neither type is better in the abstract. The answer follows from how much care you expect to use and how much of a one-time bill you could absorb.

Lower monthly premium, higher deductible, and eligibility to open and fund a Health Savings Account if the plan qualifies. You carry more of the cost early in the plan year, and the out-of-pocket maximum still caps your total exposure for covered in-network care. This tends to work when you use little routine care, when you can absorb the deductible if something goes wrong, or when you want to build an HSA balance you keep for good.
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Health Savings Account

The account is the part people underuse.

A Health Savings Account is the reason many people choose a high deductible plan in the first place. Money goes in before tax, grows in the account, and comes out untaxed when you spend it on qualified medical expenses. Unlike a flexible spending account, nothing is forfeited at the end of the year, and the balance follows you between jobs and into retirement. The catch is that you have to be enrolled in a qualifying plan to contribute, so the health plan decision and the account decision happen together.
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  • The account belongs to you, not to your employer or your insurer
  • Contributions are tax advantaged, and money you do not spend rolls over year after year
  • Withdrawals for qualified medical expenses are not taxed
  • The balance stays with you if you change jobs, change plans, or retire
  • Employers and family members can contribute to your account alongside you
  • You have to be enrolled in a qualifying high deductible plan to contribute
  • Enrollment in Medicare ends your eligibility to make new contributions
  • Annual contribution limits are set by the IRS and change each year

Is it a fit

Who tends to do well on a high deductible plan.

  • You use mostly preventive care and see doctors rarely
  • You could cover the full deductible from savings if you had to
  • You want to contribute to an HSA and keep the balance long term
  • Your employer contributes to an HSA on your behalf
  • The premium difference over a year is large enough to matter to you
  • Your regular prescriptions and providers are in network on the plan

Good to know

Common questions about HDHPs and HSAs.

What makes a health plan a high deductible health plan?
The IRS sets the definition, not the insurer. To qualify, a plan has to have a deductible of at least a set minimum amount and an out-of-pocket maximum no higher than a set ceiling, and apart from preventive care it cannot pay benefits until the deductible is met. Those amounts are updated every year, so check the current figures on irs.gov or in the plan documents. A plan with a large deductible is not automatically an HDHP in the tax sense, which is why plan materials say whether a plan is HSA qualified.
Do I get a Health Savings Account automatically?
No. Enrolling in a qualifying high deductible plan makes you eligible to open an HSA, but you open and fund the account separately, through your employer or a bank, credit union, or other custodian. You also have to have no other disqualifying coverage, and you cannot be enrolled in Medicare or claimed as a dependent on someone else return.
Is a high deductible plan cheaper?
It is cheaper each month. Whether it is cheaper for the year depends on how much care you use. Compare total annual premium plus expected out-of-pocket costs across both plans, then repeat the comparison using the out-of-pocket maximum to see the worst case. If the difference between the two totals is small, the HSA eligibility and the lower monthly payment often tip the decision.
What is covered before I meet the deductible?
In-network preventive services are covered with no cost sharing on all ACA compliant plans, including qualifying high deductible plans: annual wellness visits, recommended screenings, immunizations, and preventive counseling. Some plans also cover certain preventive medications for chronic conditions before the deductible. Everything else generally counts toward the deductible first.
What is the difference between an HSA and an FSA?
An HSA belongs to you, requires a qualifying high deductible plan, and carries its balance forward indefinitely. A Flexible Spending Account belongs to your employer plan, does not require a high deductible plan, and is generally use-it-or-lose-it within the plan year apart from limited carryover or grace period rules. If your job offers both, the health plan you pick usually determines which one is available.
Can I get a high deductible plan on my own?
Yes. HSA qualified plans are sold on the individual marketplace as well as through employers. Marketplace plan documents state whether a plan is HSA eligible, and premium tax credits can apply to marketplace plans if your income qualifies. Enter your ZIP code to see which plans in your area are available.
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