High-Deductible Health Plan (HDHP): Definition, Coverage, and Costs

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

The term high-deductible health plan (HDHP) refers to a health insurance plan with a sizable deductible for medical expenses. An HDHP usually has a larger annual deductible (often four figures) than a typical health plan but charges lower monthly premiums. The minimum deductible varies from year to year. The IRS defines an HDHP as one with a deductible of at least $1,600 for individuals and $3,200 for families in 2024, or $1,650 and $3,300, respectively, in 2025.

Key Takeaways

A high-deductible health plan (HDHP) is a health insurance plan with a sizable deductible and lower monthly premiums.
Only HDHPs qualify for tax-advantaged health savings accounts (HSA).
An HDHP is best for younger, healthier people who don’t expect to need health care coverage except in the face of a serious health emergency.
Wealthy individuals and families who can afford to pay the high deductible out of pocket and want the benefits of an HSA may benefit from HDHPs.
HDHPs are believed to lower overall health care costs by making people more aware of the cost of medical expenses.

Understanding a High-Deductible Health Plan (HDHP)

A deductible is the portion of an insurance claim that the insured must pay out of pocket before the policy coverage is activated. Once an individual pays that portion of a claim, the insurance company covers the remaining portion, as specified in the contract.

HDHPs are thought to lower overall healthcare costs by making individuals more conscious of medical expenses. The higher deductible also means lower insurance premiums, leading to more affordable monthly costs. This arrangement benefits healthy people who mainly need coverage for serious health emergencies. Wealthy families who can afford to meet the deductible also benefit because it offers access to a tax-advantaged Health Savings Account.

First dollar coverage plans are essentially the opposite of HDHPs. These plans have no deductible, but you'll pay a much higher premium, and the plan may put strict limits on the total value of coverage. Traditional medical insurance typically falls between these two extremes.

HDHP plans fully cover routine preventive care without copays or coinsurance before the deductible kicks in for the following services (which is not an exhaustive list :

Blood pressure screening
Depression screening
Diet and nutritional counseling
HIV screening
Immunizations for diseases, such as chickenpox, the flu, and the measles

HDHP coverage comes with an annual catastrophic limit on out-of-pocket expenses for covered services from in-network providers. In 2024, plans set a minimum deductible of $1,600 and $3,200 for individuals and families, which rises to $1,650 and $3,300 in 2025, respectively. The maximum deductible for 2024 is $8,050 for an individual and $16,100 for a family in 2024, increasing to $8,300 and $16,600 in 2025.

When you reach your minimum limit, your plan pays 100% of your expenses for in-network care. If you're interested in taking this route, it's important to understand how HDHPs work and how having one will change how you pay for health care.

Special Considerations

One of the perks of an HDHP is being able to open a health savings account (HSA), which is a tax-advantaged savings account. In fact, HSAs are exclusively available to people covered by an HDHP. Also, you can't have any other type of health insurance to qualify for an HSA.

HDHPs became more common when HSA-establishing legislation was signed into law in 2003.

Regular contributions to the HSA are made by the insured individual or their employer. These funds are not subject to federal income taxes at the time of deposit or withdrawal. The idea is to use them for qualified medical expenses that HDHPs don’t cover, such as:

Acupuncture
Deductibles
Dental services
Vision care
Prescription drugs
Copays
Psychiatric treatments
Other qualified expenses not covered by a health insurance plan

An HSA can reduce your costs if you face high deductibles. As long as withdrawals from an HSA are used to pay for qualified medical expenses that are not covered under the HDHP, the amount withdrawn will not be taxed.

Unlike a flexible spending account (FSA), contributions made to an HSA do not have to be spent or withdrawn during the tax year they were deposited. Any unused contributions can be rolled over—indefinitely.

For wealthy families who can afford to self-insure, an HDHP allows access to HSA tax-advantaged savings that they can use in retirement when the early withdrawal penalty for nonqualified expenses no longer applies.

Withdrawals for nonqualified expenses are subject to income tax and a 20% early withdrawal penalty if you're under the age of 65.

Advantages and Disadvantages of an HDHP

The high cost associated with HDHPs comes with certain benefits and drawbacks. We've listed some of the most common ones below.

Advantages

As noted above, insured individuals with an HDHP end up paying lower monthly premiums. This can save you money if you know that you're only going to use the plan for preventive care rather than more complicated procedures. Make sure you stay within your network to reap the benefits; otherwise you'll incur extra costs.

Covered individuals are allowed to use an HSA in conjunction with an HDHP. Remember that HSAs are tax-advantaged accounts that can be used to pay for qualified medical expenses your plan may not pay for, such as acupuncture and dental expenses. The money that you deposit into your HSA is tax-free and can help offset the cost of your high deductible.

Disadvantages

The most obvious disadvantage is the high cost associated with these plans. Higher deductibles mean that you have to pay more out of your own pocket for your medical and health care before the plan actually starts to pay for you. This can put a dent in your pocket, especially if you have unexpected health issues with which you have to deal. Around half of U.S. adults already have difficulties paying for healthcare, according to non-profit researcher KFF.

As the name indicates, you will have a high deductible with a plan like this. The deductible is the portion of the plan that you're responsible for before your insurer steps in to cover your expenses. Keep in mind, though, that your preventive care is completely covered.

Pros

Lower monthly premiums
Works with a health-savings account, which is tax-free and covers qualified medical expenses
Benefits are similar to other plans once you meet your deductible
Most employers contribute to employee HSAs, providing more funds to your medical care

Cons

Higher out-of-pocket costs
Higher deductibles
You may skip non-preventative doctor visits if your deductible has not kicked in yet
Risk that a medical emergency brings unexpected expenses

Example of an HDHP

As noted above, high-deductible health plans are suitable for people who are fairly healthy and don't need to pay for complicated medical procedures. Thus, they are appealing for people who generally only require preventive care.

For instance, a 30-year-old without any underlying conditions and other health problems may be considered a good candidate for an HDHP. This person may only require certain preventive procedures such as flu shots, nutritional counseling, or health screenings. They would not be responsible for any copays or coinsurance on those services.

Still, they may need to save up some money. If they have an unexpected medical emergency, their plan wouldn't cover any expenses until they reach their deductible.

What Qualifies as a High-Deductible Health Plan for an HSA?

You can combine your HDHP with an HSA, which is a tax-advantage health care plan. In order to qualify for an HSA, you must be enrolled in an HDHP and not have any other type of health insurance. The Internal Revenue Service defines the basic rules governng HSAs and HDHPs.

How Much Does a High-Deductible Health Plan Cost?

In order to qualify as such, an HDHP must have a minimum deductible in 2024 of $1,600 for individuals and $3,000 for family coverage in 2024 (or $1,650 and $3,300 in 2025). The maximum amount of money insured individuals must spend is $8,050 per individual and $16,100 for families in 2024 (rising to $8,300 and $16,600 in 2025). Insured individuals are also responsible for monthly premiums, which vary based on the insurer.

What Does a High-Deductible Health Plan Cover?

Medical expenses covered under an HDHP include preventive care, such as blood pressure screening, depression screening, diet and nutritional counseling, HIV screening, and immunizations for diseases like chickenpox, the flu, and measles. Insured individuals are not responsible for copays or coinsurance associated with preventative procedures. Non-qualified medical expenses aren't covered, such as acupuncture, dental, and vision care. However, keep in mind you're allowed to establish and use an HSA in conjunction with an HDHP, which can be used to pay for non-qualified medical and dental expenses. Using HSA funds to pay for non-qualified medical expenses will incur income taxes and possibly a 20% penalty depending on your age.

Who Offers High-Deductible Health Plans?

You can get coverage under an HDHP through your employer (many of whom contribute part of the HSA cost as an employee benefit). These plans are also available through government health care exchanges.

The Bottom Line

It's important to choose the right health care plan—one that fits your medical and financial needs. Some plans make you pay more out of pocket, but kick in after you reach a low deductible. Others come with higher deductibles which are offset by lower monthly premiums. These high-deductible health plans are suited for those who are healthy. can afford to pay more out-of-pocket, or who only need preventive care. Although the low upfront cost of these plans may be attractive, it's important to weigh out any other factors, like your medical history and the overall affordability, before you sign up.