A high-deductible health plan (HDHP) is a type of health insurance where you pay a lower monthly premium but a much higher deductible before the plan starts covering most medical costs.

The trade-off is straightforward: you save money on monthly payments, but you pay more out of your own pocket when you actually need care. Once you meet your deductible—the amount you must pay before insurance kicks in—the plan covers a percentage of your costs, usually 80 to 90 percent. The deductible itself is set by the insurance company and varies by plan, but for 2024, the IRS defines an HDHP as any plan with a deductible of at least $1,600 for individual coverage or $3,200 for family coverage.

HDHPs are designed to work alongside a Health Savings Account (HSA), which is a tax-advantaged savings account you can use to pay for medical expenses. Because you arrived from the HSA section, you likely already know that HSAs let you set aside pre-tax money for health costs. An HDHP is the insurance structure that makes an HSA available to you in the first place—you cannot open an HSA unless you are enrolled in an HDHP.

Key Takeaways

  • An HDHP has a lower monthly premium than traditional insurance but requires you to pay a higher deductible before coverage begins.
  • Once you meet your deductible, the insurance plan covers most remaining costs, usually at 80 to 90 percent.
  • An HDHP is the only type of health insurance that allows you to open and contribute to an HSA.
  • HDHPs work best for people who are relatively healthy and can afford to pay several thousand dollars out of pocket if a major medical event occurs.

How the deductible and cost-sharing work

When you enroll in an HDHP, you choose a plan with a specific deductible amount. That deductible is the total you must pay for covered medical services before your insurance plan begins to share the cost with you. For example, if your deductible is $2,000 and you visit a doctor who charges $150, you pay the full $150 out of pocket. If you have lab work done for $300, you pay that too. Once your out-of-pocket payments add up to $2,000, the plan starts paying its share.

After you meet the deductible, you typically pay a percentage of the cost for most services—this is called coinsurance. If your plan covers 80 percent of costs after the deductible, you pay 20 percent. Some services, like preventive care (annual checkups, certain screenings, vaccines), are often covered at 100 percent even before you meet your deductible, depending on the plan.

Each HDHP also has an out-of-pocket maximum, which is the most you will pay in a year for covered medical services. Once you reach that maximum, the insurance company pays 100 percent of covered costs for the rest of the year. For 2024, the IRS sets the maximum out-of-pocket limit at $8,300 for individual coverage and $16,600 for family coverage, though plans may set lower limits.

Who HDHPs make sense for

An HDHP works best if you are generally healthy and do not expect major medical expenses in the coming year. Because you will pay more upfront, you need to be able to afford that deductible without financial hardship. If you have chronic conditions that require frequent doctor visits or ongoing medications, an HDHP may cost you more overall than a traditional plan with a lower deductible.

HDHPs are particularly useful if you can afford to contribute money to an HSA and let it grow over time. The HSA acts as a financial cushion for medical costs and also serves as a retirement savings tool—unlike a Flexible Spending Account (FSA), HSA funds roll over year to year and can be invested. If you are young, healthy, and want to save money on taxes while building a medical fund, an HDHP paired with an HSA can be a strong choice.

HDHPs are less suitable if you have predictable, ongoing medical expenses. If you take multiple medications, see specialists regularly, or have a family member with a chronic condition, you may hit your out-of-pocket maximum quickly and end up paying more than you would with a traditional plan.

The relationship between HDHPs and HSAs

An HDHP is the gateway to an HSA. You cannot open an HSA unless you are covered by an HDHP, and you must remain enrolled in an HDHP to continue contributing to your HSA. This connection is intentional: the HSA is meant to help you manage the higher out-of-pocket costs that come with an HDHP.

When you enroll in an HDHP through your employer or the individual market, you become HSA-may be able to access. Your employer may offer an HSA directly, or you can open one through a bank or financial institution on your own. The money you contribute to the HSA is not subject to federal income tax, and you can use it to pay for may have access to medical expenses—including your deductible, coinsurance, copays, and many other health-related costs.

If you leave an HDHP and switch to a different type of insurance plan, you can no longer contribute new money to your HSA, but the money already in the account remains yours and can still be used for medical expenses.

Common costs you will encounter with an HDHP

Beyond the deductible and coinsurance, HDHPs typically include copays for specific services. A copay is a fixed amount you pay for a visit or service—for example, $30 for an urgent care visit or $50 for an emergency room visit. These copays usually count toward your deductible, meaning they reduce the amount you still owe before the plan starts covering costs at the coinsurance rate.

Prescription drugs under an HDHP are often subject to a tiered cost structure. Generic medications may cost less out of pocket than brand-name drugs, and your copay or coinsurance for drugs also counts toward your deductible. Some plans cover certain preventive medications at no cost even before you meet your deductible.

Out-of-network care—services from providers not in your plan's network—typically costs significantly more. You may pay a higher percentage of the cost or a higher deductible for out-of-network services. Always check whether a provider is in-network before scheduling care if you have not yet met your deductible.

Comparing HDHPs to other plan types

A traditional Preferred Provider Organization (PPO) plan usually has a lower deductible than an HDHP but charges a higher monthly premium. You pay less out of pocket when you use care, but you pay more every month whether you use the plan or not. A PPO does not may have access to you for an HSA.

A Health Maintenance Organization (HMO) plan typically has a low or no deductible and low copays, but requires you to choose a primary care doctor and get referrals for specialists. HMOs are often cheaper month-to-month but more restrictive in which providers you can see. Like PPOs, HMOs do not may have access to you for an HSA.

An HDHP sits between these options: higher deductible and lower premium than a PPO, but more flexibility than an HMO and the unique advantage of HSA may be able to access. The choice depends on your health needs, how much you can afford to pay upfront, and whether you want to use an HSA for tax-advantaged savings.

Frequently Asked Questions

Can I use my HSA to pay my HDHP deductible?

Yes. HSA funds can be used to pay for any may have access to medical expense, including your deductible, coinsurance, and copays. This is one of the main reasons HDHPs and HSAs work together—the HSA helps you cover the higher out-of-pocket costs.

What happens if I switch away from an HDHP?

You can no longer contribute new money to your HSA, but the money already in the account stays yours. You can continue to use it for may have access to medical expenses even after you leave the HDHP. If you switch back to an HDHP later, you can resume contributions.

Do I have to use an HSA if I enroll in an HDHP?

No, an HSA is optional. You can enroll in an HDHP without opening an HSA, though you lose the tax advantage and the savings tool. Most people who choose an HDHP do open an HSA because it makes the higher deductible more manageable.

Are preventive services covered before I meet my deductible?

Yes, most HDHPs cover preventive care at no cost before you meet your deductible. This includes annual checkups, certain screenings, and vaccinations. Check your specific plan documents to see which services are covered preventively.

What if I have a major medical event and hit my out-of-pocket maximum?

Once you reach your out-of-pocket maximum for the year, your insurance covers 100 percent of covered medical costs for the rest of that year. The out-of-pocket maximum includes your deductible, coinsurance, and copays but typically does not include your monthly premiums.