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

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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. Almost 30% of workers with health insurance enrolled in high deductible plans in 2023, compared to 20% in 2013.

For 2025, Internal Revenue Service defines high-deductible plans as those with annual deductibles of at least $1,650 for individual coverage and $3,300 for family coverage, or have annual spending limits of $8,300 for individuals and $16,600 for families.

A deductible is the amount paid for covered medical services before the insurance plan begins to partially pay for them. Once the plan’s maximum out-of-pocket payment is reached, the insurer fully covers the rest of the covered medical costs. Out-of-pocket expenses include deductibles, copayments, and coinsurance, but not premiums.

Insurers offer high-deductible plans in part because they know people who have to pay higher deductibles are less likely to seek medical care, said Leighton Ku, a professor in George Washington University’s Department of Health Policy and Management. “Because of that, you’re going to keep your health care costs down.”

How high deductible plans work

High-deductible plans come with lower monthly premiums, meaning people pay less to have insurance. But if they have a serious medical emergency or require surgery, they can end up paying thousands of dollars before insurance starts paying.

High-deductible plans usually fully cover preventive care services, such as annual physical exams, mammograms, colorectal screenings, and immunizations. But all other medical costs are borne by the policyholder until the deductible is reached. Then, the policyholder generally must pay copayments or coinsurance for doctor visits and other services, with the health insurance company paying the rest, up to the plan’s out-of-pocket maximum.

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

What are health savings accounts?

High-deductible plans often come with the option to open a health savings accountor HSA. Money deposited in an HSA can be used to pay qualified medical expenses, such as deductibles, copayments and coinsurance, but not premiums. The advantage is that this money is not subject to federal income tax, potentially allowing people to save money.

“If you’re in a bracket where you pay a decent amount of income tax, an HSA is an amazing, tax-preferred savings tool that you can only access if you have a high deductible,” said Tom Baker, a professor at Penn Carey School of Law at the University of Pennsylvania, who has experience in health insurance policy.

Any money in the HSA not spent at the end of the year rolls over to the next year. HSAs sometimes offer interest, depending on the type offered by an employer or selected on the federal market.

Who is best for a high deductible plan?

For people who do not anticipate needing significant medical care, a high-deductible plan may be a wise option.

“The thing that makes it difficult 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 plans offered by his employer, which at the time was the federal government. “One question was, ‘Do you plan to get cancer in the coming year?'” Ku said. “I don’t plan on getting cancer in the coming year, but I don’t know. You know, maybe. God knows. I hope not!

“You’re making a bet if you’re buying a high-deductible health plan because you want to say, ‘I don’t think I’m going to get sick at all, or … I’m not going to get very sick, in the coming year.’ And if you actually have to go to the doctor—even worse, if you have to go to the emergency room or the hospital—then you’re going to have to pay the entire…deductible.”

Ku compared choosing a health plan to buying a car: “You should buy a small car that might not survive a car accident or a bigger, heavier car that’s more expensive that uses a lot more fuel , but is it probably 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. An HMO or health maintenance organization tends to have lower premiums, but may have deductibles and limited out-of-network coverage. PPOs, or preferred provider organizations, allow people to see in-network and out-of-network doctors and don’t require specialist referrals, but they come with higher premiums.

The bottom line is “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 come with choosing a high deductible plan?

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’ve reached their deductibles.

“Your medical payments throughout the year are higher, and that doesn’t work for everyone,” Baker said. “There could be a lot of people where they could save some money with the high-deductible plan, but it would hurt their household budget because it will be a few months after the plan year starts when you might have to come with a few thousand dollars to pay for something For most people, that’s real money.”

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

“The money you save on premiums, you should put in a rainy day fund for when you have to make a deductible payment,” Baker said.

Confused about the different health plans? These people can help

“I’m a teacher in this field, and I keep finding that I don’t understand how my own health insurance works,” Ku said.

People who get health insurance through their employers can talk to their employers’ human resources or benefits departments.

federal market, healthcare.govdirect people to three resources for insurance application help: assistants, agents and brokers.

Assistants are trained and certified by the marketplace to help people apply for and enroll in a marketplace health plan 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 licensed in different 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 experience with the plans 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 a wider range of expertise in different insurance plans. When a broker sells a plan, the company pays him a commission.

The Pennsylvania Health Insurance Marketplace, Pennyhelp people find licensed assistants and brokers. Pennie also offers a “savings calculator” to help people choose a plan. New Jersey Market, GetCoveredNJhas a customer service center which provides support and also connect people authorized brokers and assistants.

When is enrollment open in Pennsylvania and New Jersey?

Open enrollment for plans purchased on the Pennsylvania and New Jersey government marketplaces begins Friday, November 1st. It closes in Pennsylvania on January 15th and in New Jersey on January 31st.