What an HDHP Plan Is
An HDHP (High Deductible Health Plan) is a type of health insurance where you pay a lower monthly premium but a higher deductible before the plan starts paying for most care. You meet the deductible yourself—meaning you pay the full cost of doctor visits, tests, and prescriptions until you reach that deductible amount. Once you hit it, the insurance company begins to share costs with you.
The defining feature is the deductible threshold. For 2024, the IRS sets minimum deductibles: $1,600 for individual coverage and $3,200 for family coverage. Your actual deductible may be higher depending on your plan. The trade-off is that your monthly premium is typically lower than plans with lower deductibles.
HDHPs are designed to work alongside a Health Savings Account (HSA)—a tax-advantaged savings account where you can set aside pre-tax money to pay for medical expenses. You cannot open an HSA unless you are enrolled in an HDHP, which is why the two are often discussed together.
Key Takeaways
- An HDHP requires you to pay a higher deductible out of pocket before insurance coverage begins, but your monthly premium is lower than traditional plans.
- You must be enrolled in an HDHP to open and contribute to an HSA, making the two products inseparable for tax-advantaged savings.
- Once you meet your deductible, the plan covers a percentage of costs (coinsurance) and you may have copays for certain services like preventive care.
- Preventive care—annual checkups, screenings, vaccines—is covered at no cost even before you meet your deductible on most HDHPs.
- HDHPs work best for people who expect lower medical costs in a given year or who can afford to pay the deductible if a major health event occurs.
How Costs Work Once You Enroll
When you enroll in an HDHP, you pay a monthly premium just like any other insurance. That premium is usually lower than a traditional plan's premium. However, when you use medical services, you pay the full cost until you reach your deductible.
Once you meet the deductible, the plan begins to pay its share. Most HDHPs then move to a coinsurance model, where you and the insurance company split the cost—for example, you pay 20 percent and they pay 80 percent. Some services may have a fixed copay instead (such as $30 for a specialist visit). You continue paying coinsurance until you reach your out-of-pocket maximum, which is the most you will pay in a year. After that, the plan covers 100 percent of costs for the rest of the year.
Preventive care is a major exception. Screenings, vaccines, annual checkups, and certain preventive tests are covered at no cost even before you meet your deductible. This means you can get a colonoscopy, mammogram, or flu shot without paying anything, regardless of where you are in your deductible.
The Connection Between HDHPs and HSAs
An HDHP is the only type of health insurance that allows you to open an HSA. The HSA is a separate savings account where you can deposit pre-tax money—money that is not subject to federal income tax or payroll tax. You use this account to pay for medical expenses that your HDHP does not cover, including your deductible, coinsurance, copays, and certain other costs like dental work or glasses.
The HSA belongs to you, not your employer or insurance company. Money you do not spend in a given year rolls over to the next year, and you can invest it to grow over time. This makes the HSA a long-term savings tool, not just a way to pay this year's medical bills.
If you leave your job or switch to a different type of health insurance, you keep your HSA and the money in it. However, you can only contribute to an HSA while you are enrolled in an HDHP. Once you switch to a traditional plan or Medicare, contributions stop, though you can still withdraw money for medical expenses.
Who HDHPs Make Sense For
HDHPs work best for people who expect relatively low medical costs in a given year. If you are young and healthy, rarely see a doctor, and do not take regular medications, the lower premium can save you money overall. You pay less each month, and if you stay healthy, you may never reach the deductible.
HDHPs also make sense if you have the financial cushion to cover the deductible if something unexpected happens. If a major health event occurs—surgery, hospitalization, a new diagnosis—you will owe the full deductible before insurance kicks in. If you cannot afford to pay $1,600 to $3,200 (or more) out of pocket, an HDHP creates financial risk.
People who can contribute regularly to an HSA often benefit most from HDHPs. If your employer contributes to your HSA, or if you can set aside pre-tax money yourself, you build a cushion to cover your deductible and other medical costs. Over time, this account can grow into a substantial medical savings fund.
When an HDHP May Not Be the Right Choice
If you have chronic health conditions that require frequent doctor visits or ongoing medications, an HDHP may cost you more than a traditional plan. You will hit the deductible quickly and then pay coinsurance on top of that. A plan with a lower deductible and higher premium might save you money overall.
If you are pregnant, planning surgery, or know you will need significant medical care in the coming year, calculate the total out-of-pocket costs under an HDHP versus a traditional plan before enrolling. Sometimes the higher premium of a traditional plan is worth it if you know your medical costs will be high.
HDHPs also require discipline. If you do not contribute to an HSA or cannot afford to pay medical costs upfront, you may end up paying more than you would with a traditional plan. The tax advantage of an HSA only helps if you actually use it.
Comparing HDHP Deductibles and Out-of-Pocket Limits
Not all HDHPs are identical. Plans vary in their deductible amounts, coinsurance percentages, and out-of-pocket maximums. The IRS sets minimum thresholds, but insurers can set higher deductibles and limits.
| Component | 2024 IRS Minimum (Individual) | 2024 IRS Minimum (Family) |
|---|---|---|
| Deductible | $1,600 | $3,200 |
| Out-of-Pocket Maximum | $8,050 | $16,100 |
Your actual plan may have a higher deductible and out-of-pocket maximum than these minimums. When comparing HDHP plans, look at the deductible, the coinsurance percentage after you meet it, and the out-of-pocket maximum. A plan with a $2,000 deductible but 10 percent coinsurance may cost less overall than a plan with a $1,600 deductible but 30 percent coinsurance, depending on how much medical care you use.
Frequently Asked Questions
Can I use my HSA to pay my HDHP deductible?
Yes. HSA funds can be used to pay your deductible, coinsurance, copays, and other out-of-pocket medical costs. This is one of the main reasons HDHPs and HSAs work together—you use pre-tax HSA money to cover costs the insurance does not pay.
What happens to my HSA if I switch away from an HDHP?
You keep the HSA and the money in it. You can no longer contribute new money to it, but you can withdraw funds to pay for medical expenses for the rest of your life. The account remains yours even after you retire or switch to Medicare.
Do I have to contribute to an HSA if I enroll in an HDHP?
No, but it is usually a good idea if you can afford it. Contributing to an HSA gives you a tax break and builds savings for medical costs. However, you can enroll in an HDHP without opening an HSA—you will just pay medical costs out of pocket until you meet your deductible.
Are prescription drugs covered before I meet my deductible?
Most HDHPs require you to pay the full cost of prescriptions until you meet your deductible, though some plans cover certain medications at a reduced cost. Check your plan documents or call your insurance company to see how prescriptions are handled on your specific plan.
What if I cannot afford to pay my HDHP deductible?
If you face a medical emergency and cannot pay, contact your provider's billing department to discuss payment plans or financial assistance. Some hospitals and clinics offer sliding-scale fees or charity care programs based on income. You can also ask about using an HSA if you have one, or explore whether you may have access to for Medicaid or other assistance programs.