How to Choose Between High Deductible and Low-Deductible Plans
Many employers offer both High Deductible Health Plans (HDHPs) and lower-deductible medical plan options. How do you know which is best for you and your family?
Comparing Out-of-Pocket Costs
When comparing HDHPs to lower-deductible plans, look at the total cost you will be responsible for, including monthly contributions. The hypothetical example below shows that your out-of-pocket costs may be lower with an HDHP. Even though the deductible is higher on an HDHP, the out-of-pocket maximum is generally higher on a low-deductible plan.
|Your costs:||HDHP||Low-Deductible Plan|
|Annual Contribution||$4,050 ($150/pay period)||$5,400 ($200/pay period)|
|Annual Out-Of-Pocket Maximum (After meeting deductible)||$1,500||$3,000|
|Total cost for you:||$9,050||$9,900|
This is a hypothetical example for illustrative purposes only. Actual amounts may vary.
Benefits of HDHPs
One benefit of HDHPs is they often have a lower monthly contribution amount than lower-deductible plans. If you choose a qualified HDHP, consider contributing your monthly savings from a lower-deductible plan into a Health Savings Account (HSA). An HSA puts you in control of how and when you spend funds on medical expenses, compared to a low-deductible plan for which more of your money is spent on premiums from which you may not benefit.
For example, if you choose an HDHP that is $200 per month over a lower deductible plan that is $400 per month, you could contribute the additional $200 to an HSA. Instead of that $200 going to the monthly contributions of a lower-deductible plan, it goes into your savings account for you to use tax-free on out-of-pocket medical expenses. Your money is yours to use instead of being paid in monthly contributions.
Another possible benefit to HDHPs is you have more choices for medical providers and care costs. Because you are fronting the initial costs, your major medical plan or health plan may have fewer restrictions on who you can visit or what hospitals to use. You can do your own research to find care at better prices rather than depending on your medical provider to find the care. This is also why some HDHPs are called consumer driven plans. While this research can feel overwhelming at first, you could save hundreds (even thousands) on costs. Some health plan providers have libraries of care prices and some may even offer research services at no charge to their members – just ask!
Cons of HDHPs
One obvious negative to choosing an HDHP is the initial medical costs you will have to cover on your own as you contribute toward your deductible. Especially if you are just beginning your career or have had financial hardships, this could potentially be a challenge. For people with major medical needs, having a high expense at the beginning of each plan year may not be financially feasible.
Benefits of Low-Deductible Plans
The main benefit of a low-deductible plan is your medical plan will begin helping with costs sooner. Typically, you will not need to pay full appointment costs up-front and may pay only a co-pay for each visit. These costs are billed to your insurance plan first, and then you will receive a bill later to cover the rest of your deductible or out-of-pocket portion. This type of plan may be beneficial for individuals and families with high year-round expenses, such as monthly specialists visits or high-cost prescriptions.
Cons of Low-Deductible Plans
In a year where you hit both your deductible and out-of-pocket maximum, often an HDHP still ends up being cheaper. Also, in years where you don’t have as many medical costs, with a low-deductible plan you will be paying a higher monthly contribution to a medical plan. You may or may not reap the benefits of that higher contribution.
The choice between a HDHP and low-deductible plan isn’t black and white. While HDHPs are often cheaper annually, your personal financial and health situation should determine what is best for you and your family.
This blog is up to date as of January 2021 and has not been updated for changes in the law, administration or current events.