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Choosing between a low- or high-deductible health plan

Written by: Elizabeth Walker
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Published on August 17, 2022.

Whether you’re an employer looking for a group plan or an individual looking for a plan for yourself and your family, you’ve likely wondered if it’s better to have a high-deductible health plan (HDHP) or a low-deductible health plan (LDHP).It can be difficult to make sure you have the coverage you need without paying more than you have to. In this article, we’ll walk you through the differences between an HDHP and an LDHP and how to evaluate which type of plan will work best for you based on your specific health situation.

Find out how you can supplement your group health plan with an integrated HRA

How do HDHPs and LDHPs compare?

As the name implies, the significant difference between HDHPs and LDHPs is the healthcare deductible, which is the amount you pay before your health insurer starts to pay for any medical expenses.

In 2022, an HDHP has an individual deductible of at least $1,400 and a family deductible of $2,800. In contrast, a plan qualifies as an LDHP if it has a deductible of less than $1,400 for individual coverage or $2,800 for family coverage.

While HDHPs have higher deductibles than LDHPs, they can be the more affordable option in terms of premium costs. HDHPs typically have a lower monthly premium than LDHPs. This is because the policyholder takes on more financial risk if they run into major healthcare expenses, which would mean higher out-of-pocket costs.

Which type of health plan is right for me?

There’s a lot to consider when picking the right health plan, but there are some situations where one will usually be a better fit than the other.

In the sections below, we’ll go into how both HDHPs and LDHPs work for both individuals and employers. However, this chart is a quick and easy way to compare the two plans to help get you started:

 

High-deductible health plan (HDHP)

Low-deductible health plan (LDHP)

Monthly premium

Lower than LDHP to account for increased financial risk

Higher than HDHP to account for reduced financial risk

Annual deductible

Individual: at least $1,400


Family: at least $2,800

Individual: less than $1,400


Family: less than $2,800

Out-of-pocket maximum limit

Individual: $7,050

Family: $14,100

N/A

Coinsurance

Depends on the plan, but typically higher than LDHP

Depends on the plan, but typically lower than HDHP

HSA-compatible?

Yes, as long as you have a qualified-HDHP, per IRS regulations

No

Integrated HRA compatible?

Yes

Yes

Individuals should consider if:

  1. You’re young and healthy
  2. You expect to be a low user of your health plan (i.e. you only need routine care, generic prescription drugs, or preventive care)
  3. You want to open an HSA
  4. You can’t afford the premiums on an LDHP
  1. You’re older or in poor health
  2. You expect to be a high user of your health plan (i.e. you have a serious medical condition or chronic illness)
  3. You want to limit your exposure to high medical bills

Employers should consider if:

  1. Your employees are young and healthy
  2. You can’t afford the premiums on an LDHP
  3. You want to supplement your plan with an HSA or GCHRA
  1. Your employees are older, have a chronic health condition, or have ongoing treatment
  2. You have a large health benefits budget
  3. You want to keep employee out-of-pocket costs as low as possible

Who should choose an HDHP?

Individuals

Due to the higher out-of-pocket maximum that comes with HDHPs, this type of plan may be best for healthy people who expect little to no healthcare expenses. In these cases, the lower premium of the HDHP will likely save you more money than you spend on healthcare.

Choosing an HDHP is also a good way for individuals who can’t afford an LDHP to still have health coverage. Health insurers negotiate rates with providers so you’ll pay less for products and health services overall than if you were uninsured.

HDHPs can still make sense even if you have the money to pay for an LDHP. If you open an HSA, then over time, and with enough savings in your account, you could lower any out-of-pocket expenses required by your HDHP.

Employers

As an employer, you can save a lot of money on premiums and lessen your financial burden by opting for an HDHP if your employees are generally in good health with no history of illness.

If you feel like an HDHP won’t provide enough coverage for your employees, you can always supplement your plan with an integrated HRA or an HSA to provide more comprehensive coverage for your staff.

Who should choose an LDHP?

Individuals

If you’re older, in poor health, have a chronic condition, are planning to start a family, or simply use your health benefits frequently, you would most likely benefit from a low-deductible health insurance plan.

Having an LDHP would save you money over the year because the extra money you’re paying in premiums would be far less than what you would pay in deductible amounts and out-of-pocket maximums with an HDHP if you have health issues.

For many people, it’s easier to pay a little bit more every month instead of a huge bill all at once. A Bankrate survey1 found that only 39% of Americans would be able to pay the costs of an unexpected illness out of their savings. If you don’t want to deal with potentially costly medical care, choosing an LDHP may be your best option.

Employers

If you’re an employer with a large health benefits budget and want to ensure your employees pay little to nothing in out-of-pocket medical costs, you should consider an LDHP. The lower deductibles and out-of-pocket maximums mean your insurance carrier will pick up most of the bill if your employees incur an expense.

An LDHP is also great for your employees if they tend to be more frequent users of their healthcare plans. While this type of plan is the most desirable from an employee’s perspective, it’s often unattainable due to budget, especially if you’re a smaller organization.

According to the Kaiser Family Foundation2, in 2021, only 59% of firms offered health benefits to at least some of their employees. If your price range is limited, you still have options.

If you want total budget control beyond what you could achieve with an LDHP and HDH, the qualified small employer HRA (QSEHRA) and individual coverage HRA (ICHRA) allow employers to offer a health benefit to employees while maintaining a predicable monthly and annual budget. Simply set an allowance that fits your budget and reimburse employees when they incur a qualified expense.

Ways to supplement your group health insurance plan

Health savings accounts (HSAs)

If you decide against an LDHP and you have a qualified HDHP, you might benefit from a health savings account (HSA). HSA holders contribute pre-tax dollars that can be used on various qualified healthcare expenses. You can even invest and grow your HSA funds to improve your financial situation, leaving you with more money for future medical services or even retirement.

Employers can offer an HSA alongside your company’s HDHP and contribute funds to your employees’ accounts as an added benefit. Employer contributions to an HSA are a fixed cost, and the employee takes them when they leave.

Business owners should keep in mind that employees can also use their employer contributions for non-medical expenses. A tax penalty will be enforced for this if the employee is under the age of 65.

Integrated HRA

Another option for employers is to offer an integrated HRA, also known as a group coverage HRA (GCHRA). An integrated HRA can be used to supplement both HDHPs and LDHPs and allows an employer to reimburse employees for healthcare expenses—no matter their medical situation.

The employer chooses an allowance amount employees can use to get reimbursed after they incur a medical expense. Any unused portion of an employee’s allowance returns to the company at the end of the plan year.

Since a GCHRA is an arrangement and not an account, participation is tied to employment, and accrued allowance funds don’t leave with an employee if they leave. Integrated HRAs also provide a tax break for employers and employees. Reimbursements are free of payroll taxes for employers and income tax-free for employees.

Conclusion

If you’re deciding between high or low-deductible health insurance, there’s much to consider. In general, those who use their health plan heavily will want to opt for an LDHP to keep their total out-of-pocket expenses affordable, while those with low usage will want to opt for an HDHP to save money on their monthly health insurance premiums.

While coverage options depend on budget, remember that even if you’d prefer an LDHP but can’t afford it, an HDHP is better than going uninsured. Some HDHPs allow you to open an HSA, and both HDHPs and LDHPs can be paired with a GCHRA by an employer.

While your decision is certainly personal, remember that getting the medical care you need when you need it is best for your health and finances.

This article was originally published on December 10, 2021. It was last updated on August 17, 2022.

1https://www.bankrate.com/banking/savings/financial-security-january-2021/

2https://www.kff.org/report-section/ehbs-2021-summary-of-findings/

Originally published on August 17, 2022. Last updated August 17, 2022.
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