Are high deductible health insurance plans a good deal for you?

For millions of Americans, the end of year means it’s time to review health insurance coverage as open enrollment for 2025 gets underway. That usually takes place in October and November for the 154 million who get their plan through work; for the additional 21 million who access insurance through the government-run marketplaces created under the Affordable Care Act (ACA), it starts Nov. 1 and ends Dec. 15.

One of the biggest shake-ups in recent years is the growth of high deductible plans, which offer lower monthly premiums but require consumers to pay most initial medical costs out of pocket before the plan’s coverage kicks in. While their cheaper premiums may look like a bargain, consumers risk paying much more if they have unexpected illnesses or failed to budget well for more routine care.

Here’s what you need to know when it’s time to choose a health insurance plan.

How are high deductible plans different from other options?

Most Americans are familiar with the more traditional “preferred provider organization” (PPOs), which offers a broader network of participating medical professionals and a lower deductible in exchange for a higher monthly premium. These may be a good choice for people who’ll need more than routine medical care. They also tend to have lower co-payments and don’t always require patients to seek their primary doctor’s approval to see specialists.

Some employers also offer the option of a health maintenance organization (HMO), which typically charges lower premiums but imposes more restrictions on access to specialists, with primary care doctors sometimes acting as “gatekeepers.”

Both types of plans have lost ground to high deductible plans. In 2006, only 4% of workers were covered by them; by 2024, the share was 27%, according to the nonprofit health policy research organization KFF. In that same time, the share of people in PPOs slipped from 60% to 48%, while those in HMOs dropped from 20% to 13%.

Why can high deductible plans be risky?

Many Americans have had sticker shock in recent years because deductibles have risen across most types of plans. For HMO or PPO plans, they average around $3,000 a year for family coverage (when out-of-pocket expenses of all members count against a deductible) compared to almost $5,000 for high deductible plans.

The ACA established federal requirements for most health plans, including high deductible ones, to ensure the most basic routine preventive services (such as mammograms and colorectal cancer screening) don’t require co-pays. But given the threshold for coverage under high deductible plans, enrollees are more tempted to curtail or delay other types of preventive care and elective treatments to save money, research has shown.

In other cases, consumers might hold off on elective treatments and screenings until later in the year, after they rack up other health expenses to reach their deductible. This can be especially risky for those who have chronic conditions such as heart disease and diabetes, potentially leading to missed opportunities for earlier intervention.

Given that these plans can result in hefty out-of-pocket bills, high earners are in a better position to fund their medical care, while those on lower incomes have more at risk, said Sabrina Corlette, co-director of Georgetown University’s Center on Health Insurance Reforms. She encourages “caution” before signing up — despite the allure of lower premiums.

That’s especially the case for the millions of Americans who are cash-strapped even for basic necessities. A 2022 Federal Reserve survey suggested that about 37% of adults in the United States couldn’t fully cover an unexpected $400 expense with either cash or its equivalent, such as a credit card.

Why have health insurance deductibles become so expensive?

Deductibles have been pushed up in part by the broader increase in drug prices. Another driver is the consolidation of the health care system. Larger systems can demand higher prices, and because employers want to offer plans that include major hospitals in their region, hospitals have more clout in those price negotiations, Corlette said.

“Employers and insurance companies turn around and pass those costs on to consumers,” she said. “That is done both in the form of higher premiums, but also through higher deductibles and other forms of cost sharing.”

The consolidation trend has caught the attention of the Justice Department’s antitrust division, the Federal Trade Commission and the Department of Health and Human Services, which have launched a joint inquiry into how mergers and acquisitions, especially by private equity, are driving up medical costs.

Can health savings accounts help consumers cover some of those costs?

Created in 2003, HSAs allow people to set aside a tax-free share of their paycheck for health costs. These accounts have become increasingly popular for those on high deductible plans because they can be used to cover bills before the deductible kicks in. Employers offer them in tandem with high deductible plans and sometimes kick in matching money. HSAs are also appealing because they’re portable and can be invested, so employees can take them to a new job or roll them over.

That very feature, however, has opened HSAs to criticism as tax shelters for the wealthy, who have more cash to funnel to these accounts. A Congressional Research Service report, based on 2017 IRS data, pointed to such an income divide: Up to 17% of returns reporting adjusted gross income between $200,000 and $499,999 indicated use of an HSA, while less than 4% of those between $10,000 to $24,999 did so.

If I get a choice of health insurance plans, what’s the best option for me?

The answer depends on your personal and financial circumstances. But experts agree you need to consider more than the monthly premium. If you need only routine preventive care, the high deductible option may be attractive if you accept the limits of its coverage as a trade-off.

But people need to be realistic about their potential financial liabilities and consider what will happen if they have an unforeseen illness or accident, said A. Mark Fendrick, director of the University of Michigan’s Center for Value-Based Insurance Design.

“Even if you think you’re a superhero, you have to make sure that you can cover the deductible in your plan,” he said.

Experts also advise closely looking at which services are covered in the various plans.

Deniece Maston, an HR knowledge adviser for SHRM who used to work for government contractors, recalled talking with employees who at first were attracted to the plans’ low premiums. After encouraging them to consider their families’ likely medical needs, they often made different choices, she said: “By doing the math, they found out that the cheaper plan actually had them pay more.”

Regardless of what you choose, you should also make sure your plan’s information on in-network medical professionals is up to date by checking with your doctor’s office. Sometimes insurers’ directories are inaccurate, leaving people scrambling to find new doctors and hospitals or risk facing higher costs for out-of-network care.