HDHP Meaning: What Is a High-Deductible Health Plan?
Learn about High-Deductible Health Plans (HDHPs) and how this insurance model can affect your medical costs and long-term financial health.
A High-Deductible Health Plan (HDHP) is a type of health insurance with a higher deductible than traditional plans. Individuals pay more out-of-pocket for medical care before coverage begins. Despite higher upfront costs, HDHPs typically feature lower monthly premiums.
Understanding High-Deductible Health Plans
An HDHP’s deductible is the amount an individual must pay for covered services before the plan contributes. For 2025, an HDHP must have a minimum annual deductible of $1,650 for self-only coverage or $3,300 for family coverage. After meeting this deductible, the plan may begin to share costs through coinsurance.
Coinsurance is a percentage of medical costs an individual pays after the deductible is met. For example, a plan might cover 80% of costs, leaving the individual responsible for the remaining 20% until a certain limit is reached. This cost-sharing continues until the annual out-of-pocket maximum is fulfilled.
The out-of-pocket maximum is the most an individual pays for covered services in a plan year. This limit includes deductibles, coinsurance, and copayments for in-network services. For 2025, the out-of-pocket maximum for an HDHP cannot exceed $8,300 for self-only coverage or $16,600 for family coverage. Once this maximum is reached, the plan typically covers 100% of all covered medical costs for the remainder of the year.
Connecting with a Health Savings Account (HSA)
High-Deductible Health Plans often pair with a Health Savings Account (HSA), a tax-advantaged savings account for healthcare expenses. To be eligible for an HSA, an individual must be enrolled in an HDHP and generally not have other health coverage. The HSA is an individually owned account, separate from the health plan itself.
This combination offers a “triple tax advantage” to manage healthcare costs. Contributions made to an HSA are tax-deductible, reducing taxable income. Funds within the account grow tax-free, with interest or investment earnings not taxed. Withdrawals from an HSA are tax-free when used for qualified medical expenses, offering financial flexibility.
The HSA helps cover the higher HDHP deductible. Instead of paying the deductible with after-tax money, individuals can use pre-tax or tax-deductible HSA funds. This allows individuals to save for healthcare costs while benefiting from tax incentives.
Managing Funds and Eligible Expenses
The Internal Revenue Service (IRS) sets annual limits on HSA contributions, which apply to all contributions from employers and employees. For 2025, individuals with self-only HDHP coverage can contribute up to $4,300, and those with family coverage up to $8,550. Individuals aged 55 and over can make an additional “catch-up” contribution of $1,000 annually.
Funds within an HSA can be used for a wide range of qualified medical expenses. Common examples include doctor’s visits, prescription medications, dental care, vision care, and diagnostic services. These expenses cover costs related to the diagnosis, treatment, or prevention of disease.
HSAs are fully portable, as the account belongs to the individual, not the employer or health plan. They can be retained even when changing jobs or health insurance plans. Once a balance is accumulated, many HSA providers offer investment options, potentially growing funds for future healthcare needs.