Healthcare costs are essential expenses that should be a central part of your budget. There are a number of different health care plans that you can choose from to help pay for any future medical needs, including high-deductible health plans. So, how can you know if high-deductible health plans are right for you?
The importance of making sure that you are covered in the event of a health-related issue is a vital component of your personal finances. Understanding high-deductible health plans–as well as their advantages and drawbacks–can help you determine if they are right for you and your family.
What are High-Deductible Health Plans?
High-deductible health plans, also known as HDHPs, have both minimum deductibles and maximum out-of-pocket costs.
HDHPs are also required to cover some preventative care costs. Assuming you go to an in-network provider, these plans can allow you receive services such as routine blood work, check-ups, and wellness visits without paying a dime.
However, in order to keep their status as an HDHP, the Internal Revenue Service (IRS) mandates that these plans do not cover non-preventative costs, nor are they allowed to offer a co-pay for these services, until your deductible has been met. However, HDHPs are allowed to offer some non-preventative services via telehealth through 2024.
The IRS sets a minimum and maximum deductible for individuals and families. In 2024, the minimum deductible is $1,600 for individuals and $3,200 for families. The maximum deductible is $8,050 for individuals and $16,100 for families.
What are the Benefits of High-Deductible Health Plans?
There are a number of benefits of an HDHP:
(1) Compatible with an HSA: HDHPs are the only plans that are compatible with Health Savings Accounts (HSAs), which are tax-protected savings accounts that will lower your tax liabilities in the year you make a contribution. Unlike Flexible Savings Accounts, HSAs do not expire and can be used well into your retirement. These funds can be invested, and can therefore grow tax-free over time. As long as the funds in your HSA go towards qualified medical expenses, these monies can be used tax-free.
(2) Lower monthly payments: HDHPs have lower monthly premiums, allowing you to save money every month. This can be especially appropriate for relatively healthy individuals who may not need expansive coverage for complicated medical needs. Paying less for insurance during times of good health can allow you to devote more of your income toward your other savings needs.
(3) Annual caps on expenses: On the flip side, HDHPs also have a cap on annual expenses that individuals and families will have to pay on an annual basis. Once you hit these deductibles, you will not need to pay medical fees (assuming you are going to facilities within your network).
What Are the Drawbacks of High-Deductible Health Plans?
The biggest drawback of high-deductible health plans is that you will need to pay a higher amount before your insurance kicks in. Therefore, you will be on the hook for non-preventative costs until you reach this maximum.
Beyond the finances, there could be an additional cost of going with an HDHP. If you know that you will be fully billed for a visit to a doctor for non-preventative treatments, you may be more likely to avoid seeing a health professional to save on costs. Avoiding treatment could end up costing you dearly, in both your pocketbook and your health.
How to Know if High-Deductible Health Plans Are Right for You
HDHPs can make the most sense for younger, healthier individuals who do not expect to have significant healthcare costs in the coming year.
You will have the benefit of paying less for monthly premiums while still having the comfort of knowing that you will be covered in the case of a catastrophic event.
Paradoxically, you also might choose an HDHP if you or your family are expecting to incur large healthcare costs in the year to come. Because your annual expenses are capped, this will put a ceiling on the maximum you will need to pay every year.
However, if you are expecting moderate healthcare expenses, then an HDHP is probably not the right decision. If you are highly motivated by the tax savings that are found in an HSA, a Flexible Savings Account (FSA) may suit you better. However, FSAs require your employer to open the account, so this option will not be available for everyone.
Conclusion: Taking Care of Your Health
Making sure that you and your family have the right kind of health insurance is not just good for your health, but it’s also good for your finances.
It is impossible to know what the future holds, making it vital that your healthcare needs are covered. HDHPs can be beneficial for both individuals and families.
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