7 reasons why the self-employed should choose a high-deductible health plan

If you haven’t signed up for an HSA-eligible health plan for 2024, it’s not too late to switch if you use an insurance marketplace under the ACA.

As a self-employed writer, I’ve used a high deductible health plan (HDHP) for more than a decade. Every year, during open enrollment, I wonder if it’s worth upgrading to a silver plan, which comes with richer benefits. But the higher premiums of those plans always steer me back to the bronze HDHP.

HDHPs come with some of the lowest premiums offered by a given insurer, but there are some downsides. You are charged higher fees for medical expenses and prescriptions during the year. They're also higher maintenance: Getting prices for services in advance can be cumbersome, requiring phone calls to provider offices to track down procedure codes. And if you surpass your deductible in 2024, you'll likely have spent $7,050 in medical expenses before the insurance company begins paying 100% for additional services under a bronze HDHP offered on Covered California, the state’s health insurance marketplace exchange as part of the Patient Protection and Affordable Care Act (ACA).

My own expenses in 2023 included a litany of medical tests and procedures, making me question whether I should move to silver. Yet as I calculated all the real costs of the HDHP, versus what silver what have cost me, the spreadsheet shows overall costs for the two different plans were almost the same, after factoring in the savings in premiums and tax credits.

So going into 2024, the bronze HDHP still is the better choice for me, even if I reach this year’s deductible of $7,050. (HDHPs are even more compelling for members of employer-based group plans, where the deductibles and out-of-pocket maximums tend to be lower than those on state exchanges, and many companies contribute to a health savings account as part of the plan.)

Below is my list of reasons in favor of the HDHP, which applies to Covered California , but it’s relevant to other state exchanges, and most of the items apply to all HDHP users:

1.??? The premiums are much lower than higher tiers. For my current health insurer, I’ll pay almost $3,000 less in 2024 for a bronze HDHP, compared with the same network access at the silver tier, and $7,000 less than what's similarly offered on the gold level. (Note: The younger you are, the less of a difference in premiums there will be among bronze, silver, gold and platinum.) Unlike employer-based care, where all members of a group pay the same premium, premiums for members of Covered California increase with age, and the amount you pay will go up if you receive a subsidy and your income rises. Generally speaking, if you receive a subsidy, the more you make, the more you pay, so the bronze level offers the best rates. ?

2.??? Contributions to an HSA are tax deductible. HDHPs allow you to open a corresponding health savings account, to which you make contributions to help cover future medical expenses. You can contribute up to $4,150 tax-free to your HSA in 2024. People 55 and older can contribute another $1,000. The savings on your taxes helps lower your effective health-care costs.

3.??? HSA savings carry over year to year. You can use your funds in your HSA to pay for qualified medical expenses, such as doctor’s appointments, prescription drugs, and various items. If you can afford to maximize your contributions, you can begin build a balance for future years when you might need it. Spending from the account is not taxed.

4.??? On Covered California, bronze HDHPs tend to have lower OOPMs. With health insurance, you need to carefully consider the out-of-pocket maximum (OOPM). Your medical expenses will likely reach this level in the event of a major surgery or hospitalization. For me, this number trumps all others because it’s your biggest potential loss if you stay in network. This is what you should insure against. If you make more than $36,450 in modified adjusted gross income (MAGI), the OOPM for the bronze HDHP is $7,050, lower than those on the upper tiers of silver ($9,100) and gold ($8,700). (If you make less than $36,450, which represents 250% of the federal poverty level in 2024, the OOPMs are lower, so a silver plan could be more enticing.)

5.??? You can invest your HSA funds. For the money you save in your HSA, you can invest the proceeds. Choose a provider that offers you a wide range of options to invest your funds, at a low cost. 富达 tops a list by 晨星 . An HSA with Fidelity functions much like an investment retirement account (IRA), allowing you to invest in the stock and bond markets. Some providers have severely restricted choices and high trading costs, so choose with care. If you invest, do so conservatively, and keep enough available cash to cover anticipated expenses. The gains you make can also be used for cover future medical costs.

6.??? Premiums are deductible for the self-employed. Premiums end up as a deduction for people with their own businesses, as an adjustment to income on Schedule 1 on Form 1040. (W-2 employees can only deduct premiums as part of medical costs that exceed 7.5% of AGI.)

7.??? Pricing transparency has improved. Lack of clarity on pricing in past years was my biggest complaint about high-deductible plans. But insurers have made an effort to make prices of services much more searchable online. For example, Blue Shield of California offers a Treatment Cost Estimator that includes more than 1,600 procedures and treatments. Kaiser Permanente has a treatment fee tool and a sample fee list. The information helps you quickly answer major questions about cost.

All of these advantages don’t necessarily mean you should choose an HDHP. Silver plans, though more expensive, have much lower out-of-pocket costs and copays for office visits and tests. That removes the stress of paying higher prices for medical services during the year. You’ll just pay much higher premiums, so it might be worth instead going with an HDHP. If you stay healthy, you’ll keep those savings.

Even if you have chosen a different plan for 2024, you can still make the switch if you are on a state exchange. Open enrollment continues into January, and varies by state: It’s Jan. 16 for HealthCare.gov, the federal marketplace, and Jan. 31 for Covered California.

Good luck, and here’s to a healthy 2024!