Does purchasing a High Deductible Health Plan (HDHP) ever make sense?
Updated: Oct 8, 2022
Absolutely, however its important to make sure it would make sense in your particular situation. High Deductible Health Plans come with significant upfront out of pocket costs in lieu of higher monthly premiums. This means you are responsible for the cost of your care up to your plans deductible before your insurance helps with the cost of your care (although some HDHPs may cover some preventative care at minimal or no cost).
HDHPs have a minimum deductible of $1400 for individuals and $2800 for families and a maximum out of pocket (deductible, copayments, coinsurance) of $7050 for individuals and $14100 for families for 2022. An IRS qualifying HDHP also gives you access to a Health Savings Account (HSA) in which you are able to save up to $3650 for individuals and $7300 for families (for 2022) per year tax free. Unused funds from an HSA are rolled over into the following year and grow over time.
Who might benefit from a HDHP?
Individuals who are generally healthy and do not use medical services often may benefit from lower monthly premiums. These individuals however must be prepared and able to cover their deductible upfront if needed and up to their maximum out of pocket costs if a serious illness or accident occurs. Contributions to a HSA can help cover the deductible and roll over into the following year if unused and grow over time.
Individuals whose employer contributes to their HSA. Some employers may make contributions to their employees HSA offsetting the higher deductible. Depending on the amount of the contribution, it may make sense to choose one of these plans.
Individuals who expect to have extensive medical bills may elect to go with a HDHP. Now this is highly individualized so it may not apply to all. If you are expecting your out of pocket expenses to be high enough to meet your maximum out of pocket expense for your health plan, choosing a HDHP with a HSA tax advantaged plan may be beneficial since you would be able to pay with tax free dollars from the HSA. Healthcare expenses in a regular plan may be tax deductible but only the costs above 7.5% of your income are and you must itemize on your taxes (which many no longer do with the increase in the standard deduction).
In conclusion, many people may not feel comfortable choosing a HDHP over a regular plan. However, in some cases it may really make sense to consider.