Jane Dotson
Health insurance in the United States is complex, and it can be difficult to discern whether your insurance plan is a High-Deductible Health Plan (HDHP). An HDHP is a health plan with higher deductibles than a traditional health plan, and it can be combined with a Health Savings Account (HSA) to pay for certain medical expenses with tax-free money. To determine if your insurance is an HDHP, you can refer to the IRS definition, which states that an HDHP has a deductible of at least $1,350 for an individual or $2,700 for a family, with total yearly out-of-pocket expenses not exceeding $6,650 for an individual or $13,300 for a family. Additionally, you can contact your insurance provider to confirm if your plan is HDHP-qualified, as they should know the specifics of their plans.
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What You'll Learn
HDHPs have higher deductibles than traditional health plans
A High Deductible Health Plan (HDHP) is a health plan product that combines a Health Savings Account (HSA) or a Health Reimbursement Arrangement (HRA) with traditional medical coverage. HDHPs have higher deductibles than traditional health insurance plans. This means that you pay out of pocket for your medical expenses until you reach a certain amount, after which your insurance provider starts contributing its share.
HDHPs are considered a type of consumer-driven health plan, giving patients control over how to spend and invest their money. The monthly premium is usually lower for HDHPs, but you pay more healthcare costs yourself before the insurance company starts to pay its share. This is also known as your deductible.
HDHPs typically cover in-network preventive care in full without requiring you to meet your deductible. This benefit can help you save as it can help to prevent or identify health issues before they become more costly.
The IRS defines a high-deductible health plan as any plan with a deductible of at least $1,350 for an individual or $2,700 for a family. An HDHP's total yearly out-of-pocket expenses (including deductibles, copayments, and coinsurance) can't be more than $6,650 for an individual or $13,300 for a family.
It can be difficult for non-insurance professionals to discern whether a plan qualifies as an HDHP. If you are unsure, it is recommended that you contact your insurance carrier to ask if your plan is HDHP-qualified.
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HDHPs are often combined with an HSA
A High Deductible Health Plan (HDHP) is a health insurance plan with a higher deductible than a traditional insurance plan. The monthly premium is usually lower, but you pay more health care costs yourself before the insurance company starts to pay its share. An HDHP can be combined with a Health Savings Account (HSA) to pay for certain medical expenses with money you set aside in your tax-free HSA. This is why it's often called an HSA-eligible plan.
An HSA is a tax-advantaged savings account that lets individuals and employers set aside pre-tax money to pay for qualified medical expenses. By using untaxed dollars in an HSA to pay for deductibles, copayments, coinsurance, and some other expenses, you may be able to lower your overall healthcare costs. HSA funds generally may not be used to pay premiums. Unspent HSA funds roll over from year to year, and you can hold and add to the tax-free savings to pay for medical care later. Once you turn 65, you can use the money in your HSA for anything you want. If you don't use it for qualified medical expenses, it counts as income when you file your taxes.
Not all HDHPs are HSA-qualified. According to the IRS, HSA-qualified HDHPs must have a higher annual deductible than regular individual health insurance plans, a maximum limit on annual deductible and medical costs, and offer no insurance coverage until the plan participant reaches the deductible. In 2025, the IRS defines a high deductible health plan as any health plan with a minimum deductible of $1,650 for individuals and $3,300 for families.
If you're an employer offering an HDHP or an individual covered by an HDHP, you may be able to pair that plan with an HSA. An HDHP combined with an HSA enables you to benefit from triple tax advantages and provides greater flexibility and customization in how health costs are allocated. To confirm if your HDHP is HSA-qualified, it's best to contact your insurance carrier.
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HDHPs tend to have lower monthly premiums
A High Deductible Health Plan (HDHP) is a health insurance plan that has a higher deductible than a traditional health plan. The monthly premium for an HDHP is usually lower, but the policyholder must pay more healthcare costs themselves before the insurance company starts to pay its share. This amount is known as the deductible.
However, it's important to note that HDHPs may be more costly for people with chronic health conditions who need frequent doctor visits or treatments. In these cases, the lower monthly premiums may not be enough to counter the high out-of-pocket costs. Therefore, it's essential to carefully consider the benefits and limitations of an HDHP before enrolling in one.
HDHPs can be combined with a Health Savings Account (HSA) to help save money on eligible expenses. An HSA is a type of savings account that lets you set aside money on a pre-tax basis to pay for qualified medical expenses, such as dental, drug, and vision expenses. By contributing to an HSA, you can lower your taxable income, and your earnings are tax-free.
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HDHPs may not be suitable for those with chronic health conditions
High-deductible health plans (HDHPs) are a form of catastrophic coverage, intended to cover for catastrophic illnesses. HDHPs have higher deductibles than traditional health plans, and the monthly premium is usually lower. However, this means that consumers face higher out-of-pocket costs, which can be burdensome, especially for low-income families.
While HDHPs can be beneficial for some, they may not be suitable for those with chronic health conditions. Studies have shown that HDHPs may promote behaviours such as avoiding preventive care visits and reducing necessary ambulatory care, especially for those with chronic conditions. This is because individuals with chronic conditions may require continuous care, resulting in substantial out-of-pocket health care costs. In fact, the odds of reporting delayed or forgone care for families with chronically ill members in HDHPs were three to four times greater than those in traditional plans.
To address this issue, individuals with HDHPs can contribute to a Health Savings Account (HSA) to pay for future medical expenses. HSA contributions offer a triple tax benefit: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. However, it is important to note that only certain HDHPs are HSA-eligible, and the eligibility criteria are specified by the IRS.
While HDHPs are intended to provide affordable coverage, the financial implications for enrollees with chronic conditions can be significant. This is particularly true for those with multiple chronic conditions, as the average annual out-of-pocket spending is higher for HDHPs compared to non-HDHPs. Therefore, it is essential for individuals with chronic health conditions to carefully consider their health care needs and the potential financial burden before enrolling in an HDHP.
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HDHPs can be disqualifying for HSA contribution purposes
Health Savings Accounts (HSAs) are individual accounts that allow taxpayers to save for medical expenses. HSAs can only be used in conjunction with a High Deductible Health Plan (HDHP). However, not all HDHPs are HSA-eligible.
The Internal Revenue Service (IRS) specifies that "except for preventive care, [the] plan may not provide benefits for any year until the deductible for that year is met". This means that a plan that pays for any portion of things like prescription drugs, specialist visits, or an X-ray (with or without a copay or coinsurance) before the deductible is met, is not HSA-eligible.
For example, if your plan provides coverage for a specific disease or illness, it is not an HDHP for HSA purposes. Additionally, if you are covered by an HDHP and a Health Flexible Spending Account (FSA) or Health Reimbursement Arrangement (HRA) that pays or reimburses qualified medical expenses, you cannot generally make contributions to an HSA.
It is important to note that the IRS does not consider copays for prescriptions or office visits to be qualifying coverage for HSA contribution purposes. Therefore, if your plan provides these benefits, it is disqualifying for HSA contributions.
To determine if your insurance is an HDHP, it is recommended to contact your insurance carrier directly as there are subtle differences between high-deductible plans that may affect their eligibility for an HDHP.
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Frequently asked questions
HDHP stands for High Deductible Health Plan. This means that you pay more for healthcare costs upfront before your insurance company starts to pay its share. You can know if your insurance is an HDHP by checking the amount of your deductible. For 2025, the Internal Revenue Service (IRS) defines a high-deductible health plan as any plan with an annual deductible of at least $1,650 for an individual or $3,300 for a family.
HDHPs tend to have lower premiums compared to other plans with lower deductibles. This means that you pay less for monthly coverage. If you rarely need to see a doctor or use your benefits, you may spend less on your monthly insurance payment.
HSA stands for Health Savings Account. An HDHP can be combined with an HSA, which allows you to pay for certain medical expenses with money that is free from federal taxes.
If you have a chronic health condition, an HDHP may be more costly. Frequent doctor visits or treatments could result in high out-of-pocket costs.
You can contact your insurance provider to find out if your HDHP is HSA-eligible. An HSA-eligible HDHP must have a higher annual deductible than other typical health insurance plans and a maximum limit on the annual deductible and out-of-pocket costs.
