What is a High-Deductible Health Plan (HDHP)?
A high-deductible health plan makes affordable, tax-advantaged preventative healthcare possible but can become expensive if you need additional care. Find out if an HDHP is best for you.
Summary
A high-deductible health plan is a health insurance plan with a high deductible but lower monthly premiums.
You need an HDHP to qualify for a health savings account (HSA).
HDHPs suit people in various healthcare situations, including those who need minimal care and those who have serious health conditions.
A financial advisor can help you decide if an HDHP is best for your financial and healthcare needs.
What is a High-Deductible Health Plan (HDHP)?
A high-deductible health plan (HDHP) is a health insurance plan with a relatively high deductible for medical expenses.
A deductible is the amount you have to pay out of pocket for health care services covered by your insurance before the plan begins to pay.
The annual deductible for an HDHP is typically around four figures, much higher than other health plan types. However, the monthly premiums for high-deductible health plans are much lower than the average cost of health insurance.
The minimum deductible, as defined by the IRS, for HDHPs varies from one year to another.
Effective from January 1, 2024, the minimum deductibles for HDHPs are as follows:
$1,600 for self-only coverage
$3,200 for family coverage
Note that while the IRS sets the minimum deductible for HDHPs, the price of premiums depends on your HDHP insurance provider.
What is included in an HDHP?
High-deductible health plans cover routine preventive care in full.
This means that individuals aren't responsible for coinsurance or copays on preventative care.
Some of the treatments included under preventative care:
Blood pressure screening
Cholesterol screening
Depression screening
Diabetes (Type 2) screening
Certain immunizations (such as the flu shot)
Contraception
Breast cancer mammography screening
Cervical cancer screening
Osteoporosis screening
Autism screening for children at 18 and 24 months
Behavioral assessments for children
Developmental screening for children under age 3
Hearing screening for all newborns
Vaccines for illnesses such as whooping cough, influenza and chickenpox
For any treatment outside of preventative care, you must first meet your deductible before your HDHP coverage kicks in.
Additionally, high-deductible health plans have a very high annual catastrophic limit, which is the most you can pay on out-of-pocket (OOP) expenses.
The OOC maximum limits for high-deductible health plans in 2024 are as follows:
$8,050 for self-only coverage
$16,100 for family coverage
Are there any special considerations for an HDHP?
Together, high OOP expenses and deductibles mean that you could end up paying quite a lot for medical expenses in addition to your premiums if you need to cover anything beyond preventative care.
Broadly speaking, this means that HDHPs are better suited to healthy individuals who can afford these expenses. Such individuals are unlikely to need more than preventative care but can afford to cover the OOP maximum limits and minimum deductibles in the event of unforeseen illness or injury.
However, it should be noted that high-deductible health plans are the only type of healthcare plans that allow you to open a tax-free health savings account (HSA).
This can be used to offset the expense of high deductibles and OOP limits, should they be incurred.
Can you have a HSA with HDHP?
A major advantage the HDHPs have over other health plans is that they allow you to open a health savings account. In fact, you must have a qualifying HDHP to open a HSA.
An HSA is a tax-advantaged savings account exclusively available to HDHP members.
You or your employer can make regular contributions to your HSA without having to pay federal income taxes upon deposit or withdrawal of funds. You can use your HSA as more than an alternative to traditional health insurance.
It can cover your deductibles or pay for treatments not covered by your HDHP. These may include, among others:
Dental care
Optometry
Chronic medication
Copays
Psychiatric treatment
If you do opt for an HDHP HSA, note that the IRS does limit the maximum amount that you can contribute to your HSA without incurring taxes:
$4,150 for self-only coverage
$8,300 for family coverage
Individuals aged 55 and older can increase their contribution by $1,000 per year.
What are the pros and cons of an HDHP?
It’s wise to consider the advantages and disadvantages of an HDHP in relation to your health and financial status when deciding if it’s the right option for you.
Here are just some of the pros and cons you should think about:
Pros
Higher OOP expenses
Higher deductibles
Cons
Lower monthly premiums
A high-deductible health plan with HSA provides tax benefits and can make up for high deductibles and out-of-pocket expenses.
Get expert financial advice
An HDHP allows you to take preventative care of your health at low monthly premiums.
To help you decide on the best health insurance option and for expert financial advice, let Unbiased match you with a financial advisor who cares about your financial well-being.
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