According to the IRS, HDHP is a health insurance plan with a deductible of at least $1,400 if you have an individual plan and at least $2,800 if you have a family plan. The deductible is the amount you pay out-of-pocket for medical expenses before your insurance pays for anything. Additionally, out-of-pocket costs are capped at $6,900 for individual plans and $13,800 for family plans. The out-of-pocket maximum is the maximum amount you must pay in a year for medical expenses covered by your insurance plan.

HDHP can save you money in the form of lower premiums and tax breaks, and you can get medical bills through an HSA. Before you sign up, it’s important to estimate your health bills for the coming year and see how much HDHP you’ll be paying out of pocket. In some cases, a plan with a lower deductible can save you money, even though it usually has higher premiums and doesn’t entitle you to an HSA. Also, if your employer provides it, you can use the FSA to save tax on your medical expenses with a lower deductible plan.

Pros of a high-deductible health plan

Premiums for HDHP are generally lower than equivalent health insurance plans with lower deductibles. For people who don’t expect to have a lot of medical bills in the coming year, it makes sense to minimize premiums and opt for HDHP. There’s a good chance you’ll save hundreds of dollars or more over a year this way.

Just make sure you can afford the maximum out-of-pocket costs in the worst-case scenario. If you can’t, you could end up with medical debt, and the added interest will make it harder to pay your bills. A health insurance plan with a higher premium but a cap on out-of-pocket costs may be a safer option if the HDHP caps out-of-pocket costs exceed your coverage.

Disadvantages of high deductible health plans

The biggest disadvantage of opting for HDHP is that out-of-pocket costs for a year can be high. Effective January 1, 2020, the Affordable Care Act set the maximum amount anyone can pay out of pocket for in-network benefits of $8,150 ($8,550 in 2021). The family maximum is $16,300 ($17,100 in 2021). Previously, insurance plans might require one person in the family plan to meet the family maximum. This new rule limits your risk if you have a home health insurance plan. Once any family member has $8,150 in medical bills, their bills will be 100% covered for the remainder of 2020.

Another potential problem with joining an HDHP is that you may find yourself wanting to skip doctor visits because you are not used to such high out-of-pocket costs. If HDHP is making you sick or hindering your recovery, don’t choose HDHP because you want to save money in the short term by avoiding doctors, surgeries, or prescriptions. It will cost you more in the long run, and you will feel physically unwell.

High-deductible health plans with you

Whether it makes sense to have an HDHP depends on your stage of life and the associated medical costs you may incur. If you are young and healthy and rarely visit your doctor or take prescription medications, you may save a lot of money by choosing an HDHP because of the lower premiums. If you are planning to have a baby shortly, HDHP may not be a good choice because hospital births are expensive and your out-of-pocket costs can easily exceed the plan’s annual out-of-pocket maximum. According to Truven Health Analytics 2013 In a 2010 study, commercial insurers paid $18,329 for vaginal births and $27,866 for cesarean sections in 2010, although it varied from state to state.

HDHP may also not make sense if you have young children, as they tend to visit the doctor frequently. HDHP may make sense when your child is older and both you and them are healthy. On the other hand, if anyone your plan covers has a chronic condition that requires ongoing treatment, you may benefit from a plan with a lower deductible. Finally, if you’re older, you have statistically higher medical bills, so you probably don’t want to risk your HDHP. However, if you’re still in good health and have no reason to expect expensive health care, HDHP may be right for you despite your age.

Whether HDHP will save you money always depends on the details of the specific plans available to you and your expected medical expenses for the year. Just because your situation falls into a certain category, HDHP is not automatically better or worse than a policy with a lower deductible. You always have to do the math for your situation.

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By Michael Caine

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