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A high deductible health plan, or HDHP, has a higher deductible than other types of insurance plans, as the name implies.

In return for higher deductibles, these plans usually charge lower premiums than other types of health plans.
You can combine a HDHP with a tax-advantaged health savings account (HSA). Money saved in an HSA can be used to pay for out-of-pocket, qualified medical expenses before the deductible kicks in.

An HDHP can be a good, affordable health insurance option for people who are relatively healthy and don’t see doctors or receive medical services frequently.

But these plans may not be the best choice for everyone. Read on for important things to know about HDHPs.

How Does a High Deductible Health Plan Work?

When you sign up for an HDHP, you will pay most of your medical bills out of pocket until you reach the deductible (with some exceptions, explained below).

Your deductible is the amount you’ll pay out of pocket for medical expenses before your insurance pays anything.

Under current law, in order to be considered an HDHP, the deductible must be at least $1,400 for an individual, and at least $7,000 for a family.

But deductibles can be significantly higher than these minimums, and are allowed to be as high as $2,800 for an individual and $14,000 for a family.

As with other insurance plans, HDHPs come with out-of-pocket maximums. This is the most you would ever have to pay out of pocket–that includes your deductible, copayments, and coinsurance (but exclude premiums and medical costs not covered by your plan).

Out-of-pocket maximums for HDHP plans can’t exceed $2,800 for an individual and $14,000 for a family.
Despite the high deductible with HDHPs, some health care costs may be covered 100 percent even before you meet your deductible.

The government requires all HDHPs sold on the federal insurance marketplace and many other HDHP plans to cover a fair number of preventive services without charging you a copayment or coinsurance, even if you haven’t met your deductible.

You can find a list of those covered services for adults , specifically for women , and for children at HealthCare.gov.

How Does an HDHP Work With a Health Savings Account?

When you purchase a high deductible health plan, whether it’s through the federal marketplace, an employer, or directly through an insurance company, you may also open a health savings account (HSA).

You can put aside pre-tax income in the HSA to help pay your deductible or other qualified health care expenses. However, HSA funds typically can not be used to pay for health insurance premiums.

Earnings also grow tax-free in an HSA account, and withdrawals used to pay for qualified healthcare expenses are not subject to federal taxes. As a result, HSAs can result in significant tax savings.

Currently the maximum you can save in an HSA each year and receive the tax benefits is $3,600 for an individual and $7,200 for a family. Some employers make contributions to employee HSA accounts as part of their benefits package.

HSAs are also portable, meaning you take your HSA with you when you change jobs or leave your employer for any reason. Your HSA balance rolls over year to year, so you can build up reserves to pay for health care items and services you need later.

You may contribute to an HSA only if you have an HDHP.

What are the Pros and Cons of HDHPs?

As with any health insurance plan, there are both advantages and disadvantages of HDHPs. Here are some to consider.

Advantages of HDHPs

•  Lower premiums. In exchange for the high deductible, HDHPs typically charge lower premiums than traditional healthcare plans like PPOs.
•  You can combine an HDHP with an HSA. This can help you cover out-of-pocket medical expenses with pre-tax dollars, which make these costs more affordable. And, these accounts never expire.
•  You get the same essential benefits and no-cost preventive care as other plans. HDHPs are required to cover the same types of healthcare expenses as other plans (after you meet the deductible). And, they offer the same no-cost preventive services as their more expensive counterparts.

Disadvantages of HDHPs

•  High out-of-pocket costs due to high deductibles. You will need to pay for medical expenses out of pocket (because of the high deductible), while also paying your monthly premiums.
•  A disincentive to receive care. You might be inclined to skip doctor visits because you’re not used to having such high out-of-pocket costs. Forgoing treatment, however, could cause more serious health problems down the line.
•  Emergencies can be expensive. If you need unexpected care or go to the hospital, an HDHP will not pay anything until you have met your high deductible. This can mean having to come with a significant amount of cash to cover your medical bills.

HDHPs vs. PPOs

A preferred provider organization, or PPO, is a traditional type of health plan that usually has a lower deductible than an HDHP, but charges higher premiums.

With a PPO, you will typically only have to pay a copayment, or “copay,” when you see a doctor or fill a prescription.

For other medical services and treatments, you will likely have to pay out of pocket until you reach the deductible, but that will happen sooner than it would with a HDHP.

Both PPOs and HDHPs typically have a network of providers you can work with to get the best rates.

In a PPO, however, the provider list may be smaller than it is with an HDHP. To get the best rate on your care, members of either type of plan will want to be sure they are sticking to that list.

A PPO may be advantageous if you go to the doctor a lot and/or run into unexpected medical expenses, since you start to get help from the health plan much earlier in the year than you might with an HDHP.

A PPO could end up costing you more, however, if you end up having a year with low medical expenses.

The Takeaway

So are HDHPs worth it? With an HDHP, you will likely pay a lower monthly premium than you would with a traditional health plan, such as a PPO, but you will have a higher deductible. If you combine your HDHP with an HSA, you can pay that deductible, plus other qualified medical expenses, using money you set aside in your tax-free HSA. If you are young and/or generally healthy with no chronic or long-term conditions, an HDHP may be the most affordable option for you.

On the other hand, if you have a medical condition and you make frequent doctor visits, you may find you need coverage that kicks in sooner than it would with an HDHP plan. It can be a good idea to estimate your health expenses for the upcoming year and get a rough idea of how much you will be responsible for out of pocket with an HDHP before you sign up. You might want to use a budgeting app, such as SoFi Relay, which makes it easy to categorize and track all of your expenses in one mobile dashboard.

Health insurance is just one way to protect your budget, but making sure you have insurance on your home can also help you avoid expenses in the future. SoFi Protect and Gabi offer insurance for both renters and homeowners, so you can be sure that your home, and the things inside you care about, are protected.

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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A store of value is any asset that retains its value over time. The ideal store of value would be one that has little risk and can be trusted to stay valuable well into the future.

One of the reasons that it’s important to understand the idea of a store of value is that cash always depreciates. Due to inflation, which central banks often try to keep at or around 2% per year, money loses purchasing power constantly. To see this in action, look at official Consumer Price Index (CPI ) numbers.

Store of Value Definition

A store of value will most appeal to those who have a low tolerance for risk. Store of value assets are defined as those that have a history of maintaining their value throughout time.

Speculative assets can produce tremendous returns but tend to be volatile and often come with high risk. Stores of value, on the other hand, tend to have lower volatility and lower risk, while often producing lower returns.

Store of value assets have a lot in common with safe haven assets, and sometimes the two are interchangeable. There are times when certain “safe-haven” assets can outperform many other sectors of the market, such as during times of volatility in the market when investors are fearful and seeking shelter.

Examples of Poor Stores of Value

A store of value definition wouldn’t be complete without considering what doesn’t work when it comes to retaining value.

Cash

As mentioned, fiat currency (national currencies created by central banks like the Federal Reserve) does not retain its value. Every year, the price of many goods and services rises relative to the dollar and other fiat currencies. Cash loses purchasing power steadily.

Bonds

For most of history, low-risk bonds like U.S. Treasuries have been considered the holy grail of safe havens. There was a time not too long ago when government bonds were one of the best stores of value available.

But recently, something unprecedented has been going on in bond markets all over the world: negative interest rates. Japan, Germany and several other countries, many of which are in the European Union, have had negative interest rates for years now.

Never before in recorded history has there even been a discussion of interest rates going negative. What does it mean to have a negative interest rate?

It means that investors are 100% guaranteed to lose money. Why would anyone agree to this?

There are a number of theories. Investors might want to take a small guaranteed loss as opposed to having to deal with the uncertainty of a potentially much bigger loss. Or they might believe that at some point in the future interest rates and yields will have to rise.

One logical explanation could be that investors don’t plan on holding the bonds at all, but instead are buying them with the intention of selling them for a higher price at a later date (a bond’s price is the inverse of its yield, so if yields are going down, that means bond prices are going up).

Speculative Stocks

Speculative stocks like penny stocks (stocks trading under $5 a share) are generally not considered to be good stores of value.

The value of a penny stock can rise or fall by a large amount very quickly and suddenly. Many even see their values drop to zero when a company goes bankrupt, causing shareholders to usually lose everything they had invested.

Shares of these stocks also tend to be highly volatile because of their low market caps, making it less certain whether they will hold their value during stormy periods in the equity market.

Commodities

Most commodities don’t make for practical stores of value, even though some might remain valuable for a time.

In the past, during periods of scarcity, oil was considered by some as a good store of value. But crude oil’s value is really derived by supply and demand forces. It’s price can actually be quite volatile. For instance, during periods of economic uncertainty, investors anticipate demand for oil will dip as fewer people need to drive cars or send goods, driving down the price of crude.

More recently, fracking in the U.S. has also led to much more supply of oil, which has further pressured prices–making oil not a good store of value.

Agricultural commodities like corn, wheat, or soy are impractical for similar reasons. Commodity prices in general can be volatile depending on weather and what’s happening in the world.

Examples of Potential Stores of Value

There are several assets that can serve as a store of value. Which asset class serves this purpose best is a matter of constant debate within the investment community. Much of it comes down to an investor’s individual preference, as well as the market dynamics at the time.

Gold

Gold is perhaps the most tried-and-true store of value, with a history going back thousands of years. The yellow metal has a long track record of retaining its value against other forms of money. Throughout much of modern and ancient civilization, gold served as a universal form of money and was used as both a store of value and a currency.

Today, gold is generally considered a commodity, an inflation hedge, and a safe haven asset. During times of uncertainty, gold tends to perform well. During the coronavirus crisis of 2020, for example, gold reached a record in August amid unprecedented stimulus programs across the globe, negative real rates in the bond market and a falling U.S. dollar.

Silver and platinum are other precious metals that investors have turned to as a store of value.

Gemstones

Gemstones can serve as a store of value in much the same way that gold does. Some ultra-high net worth individuals might prefer stones like diamonds, rubies, emeralds, sapphires and others to gold because they might consider these rarer and easier to transport.

For instance, a million dollars’ worth of gold might require storing several large, heavy bars of metal. The same amount of money held in diamonds might fit in a small pouch.

Bitcoin

Once considered a purely speculative asset, investing in bitcoin has increasingly been considered by some investors as a store of value (despite constant price fluctuations). Some investors consider Bitcoin to be a scarce commodity, because its supply is capped at 21 million BTC. Bitcoin’s limited supply is thought to be one reason behind Bitcoin’s rise in value since it launched in 2009. In late 2021, Bitcoin prices hit a peak of over $65,000, compared with $200 just five years earlier — and about $16,000 a year later.

Bitcoin is also relatively liquid because cryptocurrency markets trade 24/7, and there is steady demand for BTC. Also, a growing number of merchants have begun accepting Bitcoin as a form of direct payment, although widespread adoption of BTC as payment has yet to occur.

Index Funds/ETFs

Index funds and exchange-traded funds (ETFs) provide an easy way for investors to gain exposure to equity markets while getting automatic diversification.

Index funds in particular can be good stores of value because they attempt to track the performance of a market index over time. Historically, over longer time periods, financial markets have almost always gone up.

The Takeaway

In short, a store of value is something that tends to maintain or increase its price over time. The law of supply and demand very much applies here, and in itself can be used to determine whether or not something might be a good store of value.

SoFi Invest® offers investors multiple ways to participate in the markets, whether they’re looking for short-term speculative gains or long-term stores of value.

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Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

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