Open Enrollment: Here's Why You May Want to Choose a High-Deductible Health Plan for 2024

Open enrollment has been in the news a lot in the context of Medicare, because from Oct. 15 through Dec. 7, seniors on the program can make changes to their existing coverage. But even if you're years away from being on Medicare, you might still have to make an open enrollment decision shortly.

October and November are when workplace open enrollment periods commonly kick off. And so at this point, your employer may have already presented you with options so you can choose your benefits for 2024.

One big decision you'll have to make is signing up for a health insurance plan, assuming your employer provides that benefit. It's common for employers to subsidize the cost of health insurance for employees, making premiums more affordable.

But even so, you may be looking at premiums that are higher than you want to pay. And that's one reason to consider a high-deductible plan.

Why a high-deductible plan might benefit you

When you sign up for health insurance, you pay a premium to put that coverage in place. You don't pay things like copays or deductibles until you actually get sick or need a doctor. That's why a high-deductible health plan could work to your benefit.

High-deductible plans tend to offer lower premiums than low-deductible plans do. And if you're someone who doesn't tend to get sick or see a doctor all that often, that could work to your benefit.

Let's say you're given the choice between a plan with a $2,000 annual premium and a $500 deductible versus one with an $800 premium and a $2,000 deductible. The plan with the higher deductible might seem more expensive at first, but that assumes you're forced to actually cover that $2,000 deductible.

Let's say you choose the plan with the higher deductible but only end up paying $500 of it. Between that and your $800 premium, you're at $1,300. With the other plan, you're looking at $2,000 just to have coverage, regardless of how often you use it.

An HSA is a great perk to have, too

Another good reason to choose a high-deductible plan? You may be eligible to participate in a health savings account, also known as an HSA.

To qualify for an HSA in 2024, your health insurance plan needs to have a minimum deductible of $1,600 for self-only coverage, or a minimum deductible of $3,200 for family coverage. From there, you can contribute up to $4,150 to an HSA next year individually, or up to $8,300 if you have family coverage. If you're 55 or older, you get an extra $1,000 added to whichever limit applies to you.

The HSA contribution you make shields that much of your income from taxes. So if you put in $1,000, the IRS won't tax $1,000 of your earnings.

Plus, HSAs let you invest funds you don't need right away to grow your balance even more. And withdrawals are tax-free when used for medical spending.

Now, if you decide that a high-deductible health insurance plan doesn't make sense for you, you can open a flexible spending account (FSA) if your employer offers one in conjunction with a lower deductible plan. But FSAs make you spend down your plan balance every year, while HSAs let you carry funds forward indefinitely. As such, it generally pays to err on the side of underfunding an FSA and just padding your regular savings account instead to cover healthcare costs.

You might assume that choosing health insurance with a higher deductible is a bad thing. But in some situations, it could end up being a very smart financial decision.