A person’s health should be their number one priority. When you aren’t in good health, it can negatively impact your quality of life, keeping you from pursuing relationships, careers, and passions. So, having access to the proper resources and support for your health is critical.
Health insurance is on this list. One of the most significant decisions people make regarding health insurance is whether to purchase a low-deductible health plan (LDHP) or a high-deductible health plan (HDHP). This article will explore the latter.
Keep reading for a comprehensive guide on an HDHP and how to best budget for it.
What is a High-deductible Health Plan?
An HDHP is a health insurance plan with a high deductible. A deductible is an amount an individual must spend on healthcare expenses before their insurance starts covering costs. Once you reach your deductible, you’ll only have to pay a portion of healthcare costs rather than 100%.
For 2023, HDHPs include all plans with deductibles that are at least:
- $1,500 for an individual;
- $3,000 for a family.
It’s important to note that an HDHP comes with an out-of-pocket maximum as well. This is the maximum amount of out-of-pocket expenses a person pays before their insurance covers 100% of healthcare costs. $7,500 for an individual and $15,000 for a family are the maximum amounts in 2023.
The Pros of an HDHP
The biggest draw for HDHPs is the low premium. Because a person pays more out of pocket upfront, the premiums for HDHPs tend to be much lower than LDHPs.
In addition, in-network preventative care services are typically 100% covered with these plans. So, if an individual is relatively healthy and doesn’t think they’ll go through any major surgeries or illnesses soon, they won’t have to spend much on healthcare expenses.
Moreover, one can open a Health Savings Account (HSA) with their HDHP. They can use what they contribute to this account for the medical expenses they endure before they meet their deductible. Many employers match their employees’ contributions to their HSAs, and you might qualify for HSA tax deductions.
The Cons of an HDHP
The most significant drawback of an HDHP is the high deductible. As mentioned above, you must pay 100% of your healthcare expenses before reaching the deductible.
So, the higher that number is, the more money you’ll spend and the longer it takes to get relief from your insurance. All it takes is one emergency or unexpected illness that results in the need for long-term care for your finances to be severely affected.
In addition, when a person knows they’ll be on the hook for their medical expenses for quite a while, it can make them want to avoid going to the doctor altogether.
Who Is an HDHP for?
An HDHP is for individuals who:
- Are healthy and not expecting any major illnesses or surgeries in the near future;
- Can afford to pay for medical expenses upfront for a while;
- Don’t have the budget for a high premium but are proactive about their health.
Remember, the low premium comes with a cost. So, you must budget well into the future to ensure this is the right decision for your unique situation.
Making the Best Choice
Your best health insurance plan depends on your unique needs and financial capacity. You must take time to determine if you can afford medical expenses out of pocket until your insurance kicks in.
You must also consider your current state of health. For example, a person living with a chronic illness will need a lot more care than someone who doesn’t. An LDHP is probably a better option, considering their insurance won’t take as long to kick in.
Anyone considering an HDHP must take a good look at their financial ability and the state of their health before making a final decision.
14 Tips for Budgeting for an HDHP
People who decide on an HDHP definitely need to budget for it. Individuals must ensure they can afford their premiums every month. They must also put away money for medical expenses they have to cover before they reach their deductibles and out-of-pocket maximums.
Here are 14 tips for ensuring healthcare expenses don’t overwhelm you if you choose to go with an HDHP.
Live a Healthy Lifestyle
HDHPs are great options for people who are generally healthy. This is because when a person is healthy, their risk for long-term health issues and debilitating injuries is much less. They also don’t have to visit doctors and specialists as much.
That means fewer medical expenses, making an HDHP a financially-wise decision. So, if you’re going with an HDHP, make healthy living a priority. Eat mindfully. Stay hydrated. Make time to move your body. And take breaks to relax and reset. Mitigating any potentially serious and costly conditions starts with taking care of yourself.
Prioritize Preventative Care
A huge part of living more healthily is prioritizing preventative care. Preventative care reduces one’s risk for diseases, disabilities, and death. In addition, like healthy living, preventive care lessens the need for frequent doctor visits.
Furthermore, in-network preventative care is 100% covered in most HDHPs. Not taking advantage of these services is like leaving money on the table. Schedule and attend annual doctor, dentist, and vision appointments. Get general mental health screenings as well.
Understand Family Health History
Many of the health issues a person goes through are in part due to genetics. If it runs in their family line, they’re at risk of getting the illness, as well. Understanding your health history can help you prepare in significant ways.
For one, you can make a more informed decision on the kind of healthcare you’ll need in the future, which helps you make a better choice about buying an HDHP. Individuals can also research the costs associated with treatments for a chronic illness or health issue they’re at risk of experiencing.
People should take the time to learn about their family health histories. Immediate and extended family is a great place to start. Supplement what’s learned through them with an ancestry DNA test if you want to discover even more.
Learn What’s Included for Free in Your Plan
To truly budget effectively for an HDHP, you must know the ins and outs of the financial obligations associated with your respective plan. This starts with understanding what services are included for free.
Most preventative care services, like shots, screenings, well-child visits, and annual check-ups, are entirely covered by an HDHP. Depending on your plan and who it’s with, you may have access to more services free of charge.
Note what services you can use for free under your HDHP. Then, they should move on to what you’ll have to pay for out of pocket.
Learn What Isn’t Covered
More important than what’s free in an HDHP is what isn’t. That’s what individuals with these plans must budget for. When you understand what you’ll have to pay for ahead of time, you can start saving for these services early on.
For example, besides counseling, most mental health services aren’t free. Therefore, if you anticipate needing ongoing care from a psychiatrist, psychologist, psychotherapist, therapist, or counselor, you must understand each professional’s rate and the services they provide.
This will help you choose the right mental health professional for your budget and needs.
Individuals should familiarize themselves with the services not covered under their HDHPs. It is also a good idea to note the ones you think you’ll use while under this plan so that you can start saving for them as soon as possible.
Learn the Costs Associated With Common Services and Surgeries
Even if an individual with an HDHP doesn’t think they’ll need services other than preventative care, it’s still good to know the costs associated with common services and surgeries.
You can’t always accurately predict what can happen in the future. So, at least having an idea of the health issues people go through and their respective financial impacts will lessen the blow should you unexpectedly experience them. You can also see how those services and surgeries are covered under your specific HDHP.
Create a Budget
Budgeting for an HDHP requires a solid personal budget. Individuals must create a household budget that factors in healthcare expenses to prepare for life with an HDHP properly.
The first step in creating a budget is documenting income and expenses. How much do you bring in each month? List each source of income and how much it brings in.
After that, write down expenses. Document fixed costs like rent, car payments, and insurance. Write down variable expenses like gas, groceries, and entertainment.
Subtract expenses from monthly income, and the result is discretionary income. This is what you have leftover after you pay all of your bills. Allocate some of this money to healthcare expenses. A portion can go to an HSA, and the rest can go to a separate account for medical costs, if necessary.
Stick to It
People create budgets all of the time. However, sticking with them is where the real challenge lies. Consistently contributing money to an HSA and/or putting money aside for emergency medical costs is the only way to stay on top of budgeting for an HDHP.
Whatever you must do to stick within your budget, you need to do it. Find an accountability partner. Become more frugal. Audit accounts every week. Make mindset improvements. Do anything to ensure your budget isn’t just another drawing on the fridge.
Put Away Money for the Unexpected
Healthcare should be intentionally built into your budget. But, even as you save for specific medical expenses, you should also put away money for the unexpected.
Healthcare emergencies happen all the time. What an individual has in their HSAs may not be enough to cover everything — especially not everything in the long-term at that. Having an additional emergency fund to tap into can relieve stress and make things much more comfortable.
Be sure to put away emergency money every month on top of everything else.
Pair an HDHP With an HSA
Always pair an HDHP with an HSA. This is especially important because relief from one’s insurance doesn’t kick in until they’ve reached their deductible with an HDHP. Individuals can be on the hook for 100% of their medical expenses for quite some time if they don’t need healthcare often.
That’s where an HSA can help. The money in an HSA can be used to cover qualified medical expenses. So, instead of using money from your personal account, you can rely on the funds in your HSA to pay for expenses until you hit your deductible.
Or, you can use your HSA to save for healthcare expenses you’ll incur during retirement. Contribute monthly money to an HSA to build up a nice safety net for medical expenses.
Track Medical Expenses
Medical expenses can add up quickly with an HDHP. So fast, in fact, that you’re buried under them before you know it. Individuals with an HDHP must track their medical expenses down to the penny.
Doing so will give you a better understanding of what healthcare costs you incur regularly. It’ll also provide you with insight into where you can cut back and save money.
For example, let’s say an individual has been going to an out-of-network therapist for the last six months. They’re likely paying significantly more per hour for that therapist than they would with an in-network one.
After adding up the cost over the last six months, it may prompt this person to look into getting a therapist in their HDHP’s network. Yes, they’ve developed a relationship with their therapist. However, if it isn’t making sense financially, it’s best to explore other options that do.
Stay on top of all medical expenses. Organize them in a digital or physical database and audit them regularly.
Be Strategic When Scheduling Services
People with HDHPs need to be strategic when scheduling services and procedures. Of course, some procedures may not warrant the luxury of scheduling them when they’re financially feasible.
But if it’s possible, do it. For example, people who want elective surgery, like treatment for varicose veins, would benefit from waiting to schedule it until they’ve hit their deductibles. That way, insurance will pay more, and less will come out of their pocket.
You should do your best to schedule expensive procedures and services after you’ve hit your deductibles for your HDHP.
Stay in Your Network
The importance of staying in one’s network was mentioned briefly above. In-network procedures and providers will cost significantly less than those out-of-network. It’d be wonderful to get affordable care wherever by whomever you choose. But, the U.S. healthcare system just isn’t there yet.
So, you can adhere to your budget much easier when you stay within your network. You should ensure your choice of primary care physician (PCP) and any specialists you work with are in-network before getting any care from them.
Take a look at how much services with these individuals cost to ensure the fees can be covered until deductibles are reached.
Get Comfortable With Comparison Shopping
Comparison shopping should be a person with an HDHP’s best friend. You should always look for ways to save on healthcare expenses, especially in the early days of your plan.
Shop around for the best prices on prescriptions. Look for the most affordable in-network doctors and specialists. And always compare costs associated with procedures and surgeries before pursuing them.
An HDHP isn’t for everyone. Anyone interested in purchasing one should thoroughly research what it is and its financial obligations. You should also factor in your healthcare needs. Then, use the tips above to budget for an HDHP and ensure medical expenses aren’t overwhelming.
What qualifies as an HDHP?
A: Any plan with a $1,500 or more deductible for an individual and $3,000 or more for a family.
Is it worth it to have an HDHP?
A: It depends. HDHPs have lower monthly premiums. But, you have to pay more out of pocket for healthcare.
Who benefits the most from HDHPs?
A: Younger and/or healthy individuals who don’t expect any serious illnesses or injuries in the future or anticipate the need for lots of medical care.
Do HDHPs have copays?
A: No. Instead of copays, you pay all costs associated with your healthcare until you hit your deductible. Then, insurance covers part of your expenses until you reach your out-of-pocket maximum, and your insurance covers 100% of your costs.