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Choosing between a low- or high-deductible health plan

Written by: Elizabeth Walker
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Published on December 10, 2021.

For most people, open enrollment is that time of year when choosing health insurance is crucial. Whether you’re an employer looking for group plan options or an individual looking for yourself and your family, the question that is likely on your mind is: “Is it 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 situation.

Looking for a specific section? Skip ahead to your preferred section below!

How do HDHPs and LDHPs compare?

As the name implies, the major difference between HDHPs and LDHPs is the healthcare deductible, which is the amount of money you pay before your insurance carrier 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. Consequently, a plan qualifies as a LDHP if it has a deductible of less than $1,400 for an individual or $2,800 for a family.

While HDHPs have higher deductibles than LDHPs, there’s a reward for taking on more risk. HDHPs typically have lower monthly premiums than LDHPs. This is because the policyholder takes on more risk in the event they run into major healthcare expenses which would mean higher out-of-pocket costs.

New to health insurance terms like “deductible” and “premium”? Get a quick vocab lesson in our article

Which type of health plan is right for me?

There’s a lot to consider when picking a 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 each plan type works 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)

Premium

Lower than LDHP to account for increased financial risk

Higher than HDHP to account for reduced financial risk

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 you have a qualified HDHP, per IRS regulations

No

Group coverage HRA (GCHRA) 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
  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
  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 or have major health conditions
  2. You have a large health benefits budget
  3. You’re 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 maximums that come with HDHPs, this type of plan is best for healthy individuals 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 coverage. Insurance carriers negotiate rates with providers so you’ll pay less for products and 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 by opting for an HDHP, if your employees are generally in good health. You can always supplement your plan with a GCHRA or an HSA to take some of the financial burden off of your staff.

Who should choose an LDHP?

Individuals

If you’re older, have a chronic medical condition, are planning to start a family, lead an active lifestyle, or simply use your health benefits frequently, you would most likely benefit from low deductible health insurance.

Having an LDHP would save you money over the course of the year because the extra money you’re paying in premiums would be far less than the difference in deductibles and out-of-pocket maximums with an HDHP.

For many people, it’s easier to pay a little bit more every month instead of a huge bill all at once. A Bankrate survey found that only 39% of Americans would be able to pay an unexpected expense of $1,000 out of their savings. If you don’t want to deal with potential costly medical surprises, choosing an LDHP may be your best option.

Employers

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

A LDHP is also great for your employees if they tend to be higher 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 Foundation, 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.

The qualified small employer HRA (QSEHRA) and individual coverage HRA (ICHRA) allow employers to offer a health benefit to employees while controlling costs. 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 funds that can be used on a variety of qualified health care expenses. You can even invest and grow your HSA funds, leaving you with more money for future medical expenses 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.

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

Check out our HRA vs. HSA vs. FSA comparison chart to learn more

Group coverage HRA (GCHRA)

Another option for employers is to offer a group coverage HRA (GCHRA). A GCHRA can be used to supplement both HDHPs and LDHPs and allows an employer to reimburse employees for healthcare expenses without having to fund an account.

The employer chooses an allowance amount that employees can use to get reimbursed after they incur a medical expense. Any unused portion of an employee’s allowance returns back to the company at the end of the plan year. Since a GCHRA is an arrangement, participation is tied to employment and accrued allowance funds don’t leave with an employee if they leave.

Download our guide to the GCHRA for more in depth information

Conclusion

If you’re deciding between high or low deductible health insurance, there’s definitely a lot 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 premium.

Budgetary factors play into the equation, so 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, keep in mind that getting the medical care you need when you need it is best for your health and your finances.

This article was originally published on June 4, 2020. It was last updated December 10, 2021.

Originally published on December 10, 2021. Last updated December 10, 2021.
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