High Deductible Health Plans Can Lower Your Monthly Insurance Cost and Qualify You for a Health Savings Account (HSA)
If you’ve spent any amount of time shopping for a more affordable health insurance plan, then you’ve no doubt come across the term “high deductible.”
On its face, the term is simple enough. Like the name implies, a high deductible health plan (HDHP) is going to have a higher deductible than other plans. But that’s not the whole story, not by a long shot.
In this blog, I am going to go over some of the most frequently asked questions about high deductible health plans, including:
- What is a high deductible health plan?
- Do I need a high deductible health plan to open a Health Savings Account (HSA)?
- How much do high deductible health plans cost per month?
- Do HDHP plans actually save money?
High deductible health plans: Definitions and examples
Deductible: The out-of-pocket amount that must be paid by the policyholder before the insurance plan will pay out any expenses.
Premium: The monthly, up-front payment a policyholder makes to the insurance company in order to keep their plan active.
What is a high deductible health plan? (HDHP)
A high deductible health plan is a type of health insurance with lower monthly premiums. However, these plans also have higher deductibles that must be met before the plan starts paying your medical expenses.
An HDHP also gives enrollees access to a Health Savings Account (HSA), a tax-advantaged investment vehicle designed specifically for individuals with high deductibles. HSAs allow you to put away pre-tax dollars to be spent on future health expenses. These funds will grow from year to year, and can also be used to pay for pre-deductible expenses.
IRS high deductible health plan definition
For 2023, the IRS defines a high deductible health plan as any plan with a deductible of at least $1,500 for an individual or $3,000 for a family. An HDHP’s total yearly out-of-pocket expenses (including deductibles, copayments, and coinsurance) can’t be more than $7,500 for an individual or $15,000 for a family. (This limit doesn’t apply to out-of-network services.).
High deductible insurance plan examples
All ACA marketplace insurance carriers offer at least one HDHP. These plans are usually only available as Bronze-tier options, though many Silver-tier plans also include HDHP versions.
How do high deductible health plans work?
An HDHP insurance plan works just like any other plan. The key difference is that the annual deductible is higher than other plans. This means that you have to pay more out-of-pocket before your plan ‘kicks in’ and starts paying expenses.
What is an HSA and which HDHP plans are HSA-qualified?
HSA stands for Health Savings Account, a specialized investment tool that is only available to HDHP enrollees. HSAs were specifically designed to help Americans deal with high deductible plans, which makes them an essential part of saving money with an HDHP.
How do HSAs work with HDHP?
HSAs work by providing a triple tax advantage on your deposits. Each year, you can contribute a set amount of pre-tax money ($3,850 of individuals in 2023, $7,750 for families). This money is allowed to grow tax-deferred, and as long as you spend it on qualified medical expenses, the withdrawals are also tax-free.
But the key to winning big with an HSA is to make the maximum contribution every year, and try not to touch it. Unlike a 401K, there is no requirement to start taking withdrawals at age 72. In addition, the 20% penalty for non-medical withdrawals goes away when you hit 65.
For these reasons, HSAs have become a truly overlooked retirement tool. But more importantly, they provide a route for people on an HDHP plan to cover their deductible with tax-free money. AND they’ll be saving money every month with lower premiums.
Important: Not all high deductible plans are HSA-qualified
Not all HDHP insurance plans are HSA-qualified. The ones that are will be clearly labeled as “HSA-qualified.” You can also ask your Personal Benefits Manager to put together a list of HSA-qualified plans that line up with your coverage needs.
Compare Pricing on the Best HSA Plans Available
Be real: Will an HDHP lower my healthcare costs?
The primary reason people are interested in high deductible insurance plans is because they come with lower premiums. This means that HDHP plans let you pay less per-month for your health insurance costs. But if you get sick or injured, you will be one the hook for more out-of-pocket costs.
For this reason, a high deductible health plan will only save you money if you know how to use it.
The most important step is to fully fund your HSA. This will get you an immediate tax write-off. The money in your account will then grow tax-deferred until you need it for a medical expense.
At HSA for America, our number one goal is teaching people more ways to save money. If you’re interested in switching to a High Deductible Health Plan, give us a call. We’ll get you paired up with the plan that makes the most sense (and dollars, while we’re at it).
Call 800-913-0172 for a no-cost consultation, or click here to run an instant quote.
Here are some additional articles on HDHPs: Did You Receive Unemployment Benefits in 2023? Here’s How to Get $0 Health Insurance for the Next Two Years | Do You Know How to Keep Track of Your HSA Qualified Expenses?
Here are some additional pages related to this article: Healthcare.gov | FAQ on Health Savings Accounts
Mike Montes is a Personal Benefits Manager at HSA for America. His aim is to help you make smart and informed healthcare coverage decisions that will fit your needs and budget. Read more about Mike on his Bio page.