What Is High Deductible Health Plan (HDHP) Coverage?

A High Deductible Health Plan (HDHP) functions as a health plan that adheres to certain Internal Revenue Service (IRS) guidelines regarding deductibles and out-of-pocket expenses. This influences how an individual pays for medical services before the plan contributes financially.

Core Characteristics of HDHPs

A defining feature of a High Deductible Health Plan is its substantial deductible amount, which is the sum an insured individual must pay for covered medical services before the insurance company begins to pay.

These plans typically feature lower monthly premiums compared to health insurance options with lower deductibles. This difference in premium structure is a direct consequence of the higher financial responsibility placed on the insured for initial medical expenses. The fundamental design of an HDHP centers on the insured covering most healthcare costs themselves until the predetermined deductible amount has been fully satisfied.

How Deductibles and Out-of-Pocket Maximums Work

The deductible is the amount of money an insured individual must pay for covered medical services before their insurance plan starts to contribute. Once this amount is met, the plan typically begins to share costs through coinsurance or copayments until the out-of-pocket maximum is reached.

Deductibles can apply to individuals or families. For 2025, an HDHP must have a minimum annual deductible of $1,650 for self-only coverage and $3,300 for family coverage. This means that for a family plan, the family as a whole must meet the family deductible, or individual family members might have their own embedded deductibles that contribute to the overall family total.

Beyond the deductible, an out-of-pocket maximum sets the absolute limit on what an insured person will pay for covered medical expenses in a policy year. This maximum includes amounts paid towards the deductible, as well as copayments and coinsurance. For 2025, the out-of-pocket maximum for an HDHP cannot exceed $8,300 for self-only coverage and $16,600 for family coverage. Once this maximum is reached, the insurance plan pays 100% of all further covered medical costs for the remainder of that policy year.

The Role of Health Savings Accounts (HSAs)

A Health Savings Account (HSA) is a tax-advantaged savings account that can be used for qualified medical expenses. To be eligible to open and contribute to an HSA, an individual must be enrolled in an HDHP.

Contributions to an HSA can be made by the individual, their employer, or both. For 2025, the annual contribution limit is $4,300 for individuals with self-only HDHP coverage and $8,550 for those with family HDHP coverage. Individuals aged 55 and older can make an additional catch-up contribution of $1,000 annually. These contributions are tax-deductible.

The funds within an HSA grow tax-free, and withdrawals are also tax-free if used for qualified medical expenses. This triple tax advantage—tax-deductible contributions, tax-free growth, and tax-free withdrawals for eligible expenses—makes HSAs a valuable financial tool for managing healthcare costs. Unlike some other health savings vehicles, funds in an HSA roll over from year to year, do not expire, and are portable, remaining with the individual even if they change employers or health plans.

Navigating HDHP Coverage

Federal regulations, specifically the Affordable Care Act, mandate that certain preventive care services are covered at 100% by all non-grandfathered health plans, including HDHPs, even before the deductible is met. The IRS has also expanded the list of preventive care items that HDHPs can cover before the deductible, including some over-the-counter contraceptives and certain medical devices.

Prescription drug costs under an HDHP are generally subject to the deductible, meaning the insured pays the full cost of medications until the deductible is satisfied. However, some preventive medications may be covered before the deductible. It is important for individuals to check their specific plan’s formulary and coverage rules for prescription drugs.

The distinction between in-network and out-of-network care significantly impacts costs. In-network providers have negotiated rates with the insurance plan, resulting in lower costs for the insured. Out-of-network care, conversely, is typically more expensive, and depending on the plan, may not count towards the annual out-of-pocket maximum. Emergency care is often a notable exception, as many plans cover emergency services at in-network rates, even if the facility or providers are out-of-network. Specialist visits and other non-preventive medical services, like doctor’s appointments or diagnostic tests, generally require the insured to pay towards their deductible first before the plan begins to cover costs through coinsurance.