What are the pros and cons of high deductible health insurance?

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High-deductible plans have become more attractive over the past decade as health care costs and premiums have risen, experts say. Nearly 30% of employees have health insurance registered with a high deductible plans in 2023, compared to 20% in 2013.

For 2025 the Domestic Tax Authorities defines high-deductible plans as plans with an annual deductible of at least $1,650 for individual coverage and $3,300 for family coverage, or with annual out-of-pocket limits of $8,300 for individuals and $16,600 for families.

A deductible is the amount you pay for covered medical services before the insurance plan begins to partially pay for them. Once the plan’s deductible is met, the insurer will fully cover the remainder of the covered medical costs. Out-of-pocket costs include deductibles, copays and coinsurance, but not premiums.

Insurers offer high-deductible plans partly because they know that people who have to pay higher deductibles are less likely to seek medical care, says Leighton Ku, a professor at George Washington University’s Department of Health Policy and Management. “This keeps healthcare costs low.”

How high deductible plans work

High deductible plans have lower monthly premiums, which means people pay less for insurance. But if they have a serious medical emergency or need surgery, they could end up paying thousands of dollars before their insurance starts paying out.

High deductible plans typically fully cover preventive care services, such as annual physicals, mammograms, colorectal screenings and immunizations. But all other medical costs are borne by the policyholder until the deductible has been reached. Then the policyholder typically must pay copays or coinsurance for doctor visits and other services, while the health insurer pays the rest, until the plan’s deductible is met.

“So the trade-off is that you have more insurance coverage with regular health insurance than with a high-deductible health plan,” Ku said. “On the other hand, the high-deductible health plan typically has a lower monthly premium.”

What are health savings accounts?

High deductible plans often come with the option to purchase a health savings accountor HSA. Money deposited into an HSA can be used to pay for qualified medical expenses such as deductibles, co-pays and coinsurance, but not for premiums. The benefit is that this money is not subject to federal income tax, potentially saving people money.

“If you’re in a group where you pay a significant amount of income tax, an HSA is a great savings vehicle that you can only access if you have a high deductible,” says Tom Baker, a professor at Penn Carey Law School from the University of Pennsylvania, who has expertise in health insurance.

The money in the HSA that is not spent at the end of the year carries over to the next year. HSAs sometimes offer interest depending on the type offered by an employer or selected on the federal marketplace.

Who is best for a high deductible plan?

For people who don’t expect to need significant medical care, a high-deductible plan may be a sensible option.

“What makes this tricky is that you don’t necessarily know in advance how much medical care you’re going to need,” Ku said.

Ku recalled once reading a guide on how to choose one of the many health insurance plans offered by his employer, then the federal government. “One question was, ‘Are you planning on getting cancer in the next year?’” Ku said. “I don’t plan on getting cancer in the next year, but I don’t know. You know, gee, maybe. God knows. I hope not!”

“You’re taking a gamble when you buy high-deductible health insurance because you’re essentially saying, ‘I don’t think I’m going to get sick, or… not very sick, in the next year.’ And if you do need to go to the doctor – even worse, if you need to go to the emergency room or hospital – you will have to pay the full deductible.”

Ku compared choosing a health plan to buying a car: “Should you buy a small car that may not be able to withstand a car accident, or a larger, heavier car that is more expensive, that uses a lot more fuel, but is likely is safer? ?”

If you need a lot of medical care, it makes more sense to get one HMO or PPO plan versus a high-deductible plan, Ku said. HMOs, or HMOs, typically have lower premiums but may also have deductibles and limited out-of-network coverage. PPOs, or preferred organizations, allow people to visit doctors in and out of network and do not require referrals to specialists, but they do have higher premiums.

The bottom line is that the “best situation for a high-deductible health plan is a high-deductible health plan, plus an HSA, for a wealthy, healthy young person,” Ku said.

What risks does choosing a high deductible plan entail?

With a high-deductible plan, people who have unexpected health care costs, such as a catastrophic event or a cancer diagnosis, must pay all of those costs until they reach their deductible.

“Your medical payments are larger throughout the year, and that doesn’t work for everyone,” Baker said. “There might be plenty of people who could save some money with the high deductible plan, but it would mess up their household budgets because there will be a few months into the plan year when you might have to go with a plan.” must come A few thousand dollars to pay for something. For most people, that’s real money.”

People who opt for high-deductible plans should consider how they will fare financially if they have to pay the deductible — possibly all at once — in the event of a major medical event, Baker said.

“The money you save on your premiums should be put into a rainy day fund for when you have to pay a deductible,” Baker said.

Are you confused about the different health plans? These people can help

“I’m a professor in this field and I constantly find myself not understanding how my own health insurance works,” Ku said.

People who get health insurance through their employer can talk to their employer’s human resources or benefits department.

The federal market, healthcare.govrefers people to three resources for help applying for insurance: assistants, agents and brokers.

Assistants are trained and certified by the marketplace to help people apply for and enroll in a health plan on the marketplace or apply for free or low-cost coverage through Medicaid or the Children’s health insurance program. Assistants must be impartial.

Some agents and brokers are trained through the health insurance marketplace and are licensed in several states to sell marketplace plans.

Agents work for specific insurance companies, are paid by the companies they represent, and can only sell plans for the companies they work for. This means they have a lot of expertise in the insurance they sell, but are motivated to sell plans from the insurers they represent.

Brokers are not tied to specific insurance companies. Brokers represent people who buy insurance and generally have broader expertise in different insurance plans. When a broker sells a plan, the company pays the broker a commission.

Pennsylvania’s health insurance marketplace, Penniehelps people find certified assistants and real estate agents. Pennie also offers one “savings calculator” to help people choose a plan. The New Jersey Marketplace, GetCoveredNJhas a customer service center who offers help and also connects people to real estate agents and certified assistants.

When is open enrollment in Pennsylvania and New Jersey?

Enrollment for plans purchased on government-run marketplaces in Pennsylvania and New Jersey begins Friday, November 1. Registration closes on January 15 in Pennsylvania and January 31 in New Jersey.