High-Deductible Health Plan (HDHP)

What is a High-Deductible Health Plan (HDHP)?

A high-deductible health plan (HDHP) is a type of health insurance with a larger annual deductible than typical plans and lower monthly premiums. HDHPs are designed to shift more up-front cost responsibility to the insured while keeping regular premium costs lower. Many HDHPs qualify their enrollees to open a Health Savings Account (HSA), a tax-advantaged account for medical expenses.

How HDHPs work

• Deductible: You pay medical costs out of pocket until you reach the plan’s deductible; after that, the plan covers eligible costs as specified by the policy.
• Premiums vs. out-of-pocket: HDHPs offer lower monthly premiums in exchange for higher out-of-pocket responsibility, making them attractive to generally healthy people who want protection against major expenses.
• Preventive care: Most HDHPs fully cover preventive services (screenings, immunizations, counseling) without copays or coinsurance and without requiring the deductible to be met.
• Network limits: HDHPs typically have in-network limits and an annual out-of-pocket maximum. Once that maximum is reached, the plan generally pays 100% of covered in-network care.

Key 2024–2025 thresholds (IRS definitions)

• Minimum deductible to qualify as an HDHP:
• 2024: $1,600 (individual), $3,200 (family)
• 2025: $1,650 (individual), $3,300 (family)
• Maximum out-of-pocket limits:
• 2024: $8,050 (individual), $16,100 (family)
• 2025: $8,300 (individual), $16,600 (family)

(Plans may offer higher deductibles and different premium levels; insurers set premiums and plan details within these regulatory ranges.)

Health Savings Accounts (HSAs)

• Eligibility: Only those enrolled in an HSA-eligible HDHP can open and contribute to an HSA. You also must not have other disqualifying health coverage.
• Tax advantages: Contributions are tax-advantaged (pre-tax or tax-deductible), grow tax-free, and withdrawals used for qualified medical expenses are tax-free.
• Rollover and portability: Unlike FSAs, HSA funds roll over year to year indefinitely and remain yours even if you change jobs.
• Qualified vs. nonqualified withdrawals: Withdrawals for qualified medical expenses are tax-free. Withdrawals for nonqualified expenses are subject to income tax and may incur a 20% penalty if taken before age 65.

What HDHPs typically cover

• Fully covered preventive services (no copay/coinsurance): blood pressure checks, depression screening, certain counseling, HIV screening, standard immunizations, etc.
• Non-preventive care: Subject to the deductible and coinsurance until the deductible or out-of-pocket maximum is met.
• Many HDHPs do not cover dental or vision services as part of medical coverage (these are often provided via separate plans). HSA funds can generally be used for many dental and vision expenses if they qualify under HSA rules.

Pros and cons

Pros
– Lower monthly premiums.
– Access to an HSA with tax benefits to save for and pay medical expenses.
– Once the deductible/out-of-pocket maximum is met, benefits become comparable to other plans for covered services.
– Employers often contribute to employee HSAs.

Cons
– Higher out-of-pocket costs before insurance benefits begin.
– Large, unexpected medical events can create substantial immediate expenses.
– People may delay nonurgent care because of cost until the deductible is met.
– Not suitable for those who expect frequent medical care or have chronic conditions without sufficient savings.

Who should consider an HDHP?

• Generally healthy individuals who mainly need preventive care and want lower monthly premiums.
• People who can afford to cover a high deductible if an emergency occurs or who can regularly contribute to an HSA to build a medical savings buffer.
• Those who want to take advantage of HSA tax benefits for long-term medical savings.

Example

A healthy 30-year-old with no chronic conditions may choose an HDHP to keep monthly costs low while using preventive services that are covered without cost. If an unexpected emergency occurs, they must pay medical costs up to the deductible before insurance pays; having an HSA can help smooth those costs.

Where to get an HDHP

• Through an employer (many employers offer HDHPs and may contribute to an employee’s HSA).
• Through government or private health insurance exchanges and insurers.

Choosing the right plan

Evaluate:
– Your expected medical needs (routine care, prescriptions, chronic conditions).
– Ability to pay the deductible and build HSA savings.
– Whether your preferred doctors and hospitals are in-network.
– Employer HSA contributions and plan premium differences.

Bottom line

HDHPs trade higher up-front medical cost responsibility for lower monthly premiums and HSA eligibility. They can be a good fit for healthy individuals or those who can build HSA savings, but they carry financial risk if you require frequent or costly care. Compare plan details, network coverage, and your financial readiness before choosing an HDHP.