With rising healthcare costs nationwide, it’s understandable to want a cost-effective health plan that doesn’t sacrifice quality of care. You've probably encountered high deductible health plans (HDHPs) when researching health insurance policies. But can they be the solution to your needs?
HDHPs can offer significant financial savings for individuals. That may be why more than half of private-sector employees enrolled in an HDHP in 20231. But before enrolling in one, you need to know how to make it work for you and your family.
In this article, we’ll explain how HDHPs work and the steps you should take to maximize the plan's benefits.
In this blog post, you’ll learn:
Before we discuss how to use HDHPs to your advantage, let’s briefly review how they work.
An HDHP is a health plan with a high deductible that individuals must meet before their health insurance company pays for covered medical expenses. Because these policies have a higher annual deductible, they tend to have lower health insurance premiums.
A health insurance plan must meet specific criteria for the federal government to consider it an HDHP. These criteria change annually.
In 2024, the Internal Revenue Service defines an HDHP as:
Under the Affordable Care Act (ACA), all HDHPs bought on the individual market, like the Health Insurance Marketplace, must cover certain preventive services at in-network providers, regardless of whether you’ve met your deductible. Some preventive care services HDHPs may cover are immunizations, annual physicals, routine prenatal care, tobacco cessation programs, and more.
Even though HDHPs can help you save on monthly premium costs, you must consider a few other important factors before determining if this type of health insurance plan is best for you. Some supplemental health benefits can also make an HDHP even more effective.
Let’s discuss a few of these items in the sections below so you can make an informed decision about HDHPs.
Until you hit your deductible, you’ll be responsible for paying any non-routine, preventative care entirely out-of-pocket with an HDHP. Because of this, HDHPs may work best for you if you’re young, relatively healthy, and have few medical expenses.
Suppose you have a chronic condition, need ongoing treatment, or have children requiring frequent doctor visits. In that case, an HDHP may not provide enough coverage, and your out-of-pocket costs will outweigh any savings on premiums. However, young, single individuals with a good health status who anticipate only needing routine care would likely only pay for monthly premiums and the occasional medical expense. This can make an HDHP a great way to save on monthly healthcare expenses while having coverage for emergency care.
So, before enrolling in an HDHP, consider the following to ensure you’re choosing a plan with enough coverage:
The one thing all HDHPs have in common is a high deductible. But, like all health insurance policies, individual plan details will vary. Some details that may impact whether a specific HDHP is right for you are the premium, covered services, plan type, location, out-of-pocket costs, and provider network.
Let’s review three of the most important details:
Covered services can also fluctuate. So check the details before enrolling to anticipate your out-of-pocket costs and know if specific medical services are covered.
Lastly, if you already have a preferred primary care provider, you’ll want to check that your plan has them in their network. Similarly, you’ll want to understand if an HDHP is a preferred provider organization (PPO), health maintenance organization (HMO), point of service (POS), or exclusive provider organization (EPO) plan. Each plan functions differently and can impact your experience.
If you’re worried about the out-of-pocket costs associated with an HDHP, you can offset them by opening a health savings account (HSA).
HSAs are savings accounts to which you can contribute pre-tax money toward. Once the money is in the account, you can spend it on medical services and other qualifying out-of-pocket expenses.
Employers typically include HSAs in their compensation package as a tax-advantaged benefit. However, individuals can open one on their own through an HSA provider. If your employer offers you an HSA, they can also contribute to it. Your combined contribution can be any amount up to the maximum annual limit.
Other advantages of an HSA include the following:
HSAs are potent tools for counteracting the high health insurance deductible and other out-of-pocket costs of HDHPs. However, you must have an HSA-qualified HDHP to contribute to the account. This means your employer must offer you a group HSA-qualified HDHP, or you can enroll in an individual qualified HDHP through a public or private health insurance exchange.
If you don’t want to open an HSA and you’re already participating in your company’s group health plan, you can ask your employer if they’d be willing to add an integrated HRA to their benefits package.
Also known as a group coverage health reimbursement arrangement (GCHRA), integrated HRAs supplement an employer’s group health plan by reimbursing employees tax-free for qualified medical expenses their plan doesn’t cover.
Integrated HRAs work like other HRAs. Your employer offers you a monthly allowance to spend on medical care. Once you purchase an eligible expense and submit proper documentation, your employer reimburses you tax-free up to your allowance amount. Only employees enrolled in their employer’s group plan can participate in the integrated HRA.
While HSAs only work with HSA-qualified HDHPs, GCHRAs have more flexibility. They can work with any type of group healthcare coverage, including HDHPs. However, only an employer can offer an HRA and contribute to it.
Below are some advantages of the GCHRA:
Integrated HRAs are a great way to cover your health plan’s deductible and other eligible expenses for you and your family. They’re flexible, have tax benefits, and offer excellent savings. However, they aren’t portable benefits. Any unused HRA funds stay with your employer at the plan year's end or if you leave their organization.
Because of their affordable premium costs, HDHPs are a popular health plan option. However, it’s essential to consider more than just cost when deciding if this health plan is right for you. Health status, potential annual medical expenses, out-of-pocket maximums, and supplemental benefits are all critical factors in making an HDHP work best for you and your family.
If you want to make your HDHP even more beneficial, supplementing it with a personalized GCHRA is an excellent way to do so. If your employer allows feedback on their compensation package, suggesting they offer a GCHRA can help you get the most out of your HDHP while saving on out-of-pocket medical expenses.
This article was originally published on August 27, 2020. It was last updated on August 12, 2024.