Choosing between a low- or high-deductible health plan
Health Benefits • December 29, 2023 at 11:30 AM • Written by: Elizabeth Walker
Whether you’re an employer looking for a group plan for your employees or an individual looking for a plan for you and your family, you’ve likely wondered about the difference between a high deductible health plan (HDHP) and a low deductible health plan (LDHP).
It can be challenging 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 specifics of HDHPs and LDHPs and how to evaluate which type of plan will work best for you based on your specific health situation.
How do HDHPs and LDHPs compare?
As their names imply, the significant difference between HDHPs and LDHPs is the healthcare deductible. A deductible is the amount you pay before your health insurance company starts to pay for any medical expenses.
According to the IRS1, in 2024, a traditional health plan must have an individual deductible of at least $1,600 and a family deductible of at least $3,200 to be considered an HDHP. In contrast, a plan is considered an LDHP if it has a deductible of less than $1,600 for self-only coverage or $3,200 for family coverage.
While HDHPs have higher deductibles than LDHPs, they can be the more affordable option in terms of monthly 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 medical 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.
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 these two traditional plan types 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 level |
Self-only: at least $1,600 Family: at least $3,200 |
Self-only: less than $1,600 Family: less than $3,200 |
|
Out-of-pocket maximum limit |
Self-only: $8,050 Family: $16,100 |
N/A |
|
Coinsurance |
It depends on the plan, but typically coinsurance is higher than with an LDHP |
It depends on the plan, but coinsurance is typically lower than with an HDHP |
|
Health savings account (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 services) 3. You want to open a health savings account (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 group coverage health reimbursement arrangement (GCHRA) |
1. Your employees are older, are in poor health, have a chronic health condition, or have ongoing treatment 2. You have a large employee benefits budget 3. You want to keep employee out-of-pocket medical costs as low as possible |
Who should choose an HDHP?
Individuals
Due to the higher out-of-pocket expenses that come with HDHPs, this type of plan may be best for healthy people who expect little to no healthcare costs. In these cases, the lower premium of the HDHP will likely save you more money than you would spend on medical care.
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. And if you buy your plan on the individual market, your HDHP will cover essential healthcare, like preventive services, if you do need medical attention.
High-deductible plans 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 costs required by your HDHP.
Employers
As an employer, you can save money on premiums and reduce 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. This enables you 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 low-deductible health insurance coverage.
Having an LDHP can save you money over the year if you have costly health issues. The extra money you’re paying in premiums would be far less than what you would be paying in deductible amounts 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 survey2 found that only 39% of Americans can 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 deductible and out-of-pocket maximum 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 use their healthcare plans frequently. 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 Foundation3, in 2022, only 51% 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 HDHP, there are alternatives available, such as a health reimbursement arrangement (HRA). The qualified small employer HRA (QSEHRA) and individual coverage HRA (ICHRA) allow employers to offer a health benefit to employees while maintaining a predictable monthly and annual budget. Simply set an allowance that fits your health benefits 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 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 remember that employees can also use their employer contributions for non-medical expenses. The IRS will enforce a tax penalty 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 their out-of-pocket healthcare expenses, helping them to reduce any financial vulnerabilities—no matter their medical situation.
The employer chooses an allowance amount employees can use to get reimbursed after they incur a medical expense. Unlike HSAs, there are no employer contribution limits with GCHRAs, so you can give your employees as much money as you choose. Any unused portion of an employee’s allowance stays with the company at the end of the plan year.
Since a GCHRA is an arrangement and not an account, participation requires employment, and accrued allowance funds don’t leave with an employee if they leave. Integrated HRAs also provide tax breaks 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 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 a high-deductible plan is better than going uninsured, even if you’d prefer an LDHP but can’t afford it. Some HDHPs allow you to open an HSA, and both HDHPs and LDHPs can integrate with a GCHRA. If you’re an employer who thinks a GCHRA is right for your organization, contact us, and we’ll help you get started.
This article was originally published on December 10, 2021. It was last updated on December 29, 2023.
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Elizabeth Walker
Elizabeth Walker is a content marketing specialist at PeopleKeep. She has worked for the company since April 2021. Elizabeth has been a writer for more than 20 years and has written several poems and short stories, in addition to publishing two children’s books in 2019 and 2021. Her background as a musician and love of the arts continues to inspire her writing and strengthens her ability to be creative.