What Is a High-Deductible Health Plan (HDHP)?

Health insurance helps manage the financial aspects of medical care, offering protection against unexpected health costs. High-Deductible Health Plans (HDHPs) have become a prominent option for many individuals and families seeking coverage. Understanding their structure and benefits is important for navigating the modern healthcare landscape.

Defining the High-Deductible Health Plan (HDHP)

A High-Deductible Health Plan (HDHP) is characterized by a higher annual deductible compared to traditional insurance offerings. This means individuals pay more out-of-pocket for medical services before their insurance contributes significantly. The Internal Revenue Service (IRS) sets annual criteria for HDHPs. For 2025, the minimum annual deductible is $1,650 for self-only coverage or $3,300 for family coverage.

HDHPs also have an out-of-pocket maximum, which is the most an insured individual or family will pay for covered services in a plan year, excluding premiums. For 2025, this limit is $8,300 for self-only coverage or $16,600 for family coverage. These plans typically have lower monthly premiums than plans with lower deductibles, appealing to those who expect fewer medical expenses or prefer lower upfront costs.

How HDHPs Function

An HDHP involves a specific sequence of financial responsibility. The insured individual pays the full cost of most medical services, including doctor visits and prescriptions, until their annual deductible is met. However, certain preventive care services, such as routine check-ups and immunizations, are covered at 100% before the deductible is satisfied, as mandated by the Affordable Care Act.

After the deductible is met, the plan shares costs through coinsurance; for example, the plan might pay 80% and the insured pays 20%. Once the annual out-of-pocket limit is reached, the HDHP covers 100% of eligible medical expenses for the rest of the plan year. This cap ensures a policyholder’s annual medical costs do not exceed a set amount.

The Role of Health Savings Accounts (HSAs)

A key advantage of High-Deductible Health Plans is eligibility for a Health Savings Account (HSA). An HSA is a tax-advantaged savings account for qualified medical expenses. Only individuals enrolled in an HDHP that meets specific IRS requirements, including minimum deductible and maximum out-of-pocket limits, can establish and contribute to an HSA.

HSAs are often paired with HDHPs to help mitigate the financial impact of the high deductible. By contributing funds, individuals can build a savings reserve to cover initial out-of-pocket medical costs. The IRS details eligibility rules and plan criteria in publications like Publication 969, “Health Savings Accounts and Other Tax-Favored Health Plans.”

Managing Your Health Savings Account

A Health Savings Account offers financial advantages for managing healthcare costs. Contributions can be made by the individual, employer, or both, and are tax-deductible. The IRS sets annual limits; for 2025, the maximum contribution is $4,300 for self-only coverage and $8,550 for family coverage, with an additional $1,000 catch-up contribution for those aged 55 and over.

HSAs have a “triple tax advantage”: contributions are tax-deductible, funds grow tax-free, and withdrawals for qualified medical expenses are tax-free. Qualified medical expenses include doctor visits, prescription medications, dental care, vision care, and certain over-the-counter items. IRS Publication 502 provides guidance on qualified medical expenses. HSA funds roll over annually and can be invested, serving as a long-term savings vehicle for future healthcare costs, including retirement.