HDHP

An HDHP, or high-deductible health plan, is a type of health insurance plan that requires a higher deductible before most benefits begin, typically paired with lower monthly premiums. In the United States, to qualify as an HDHP, a plan must meet minimum annual deductibles and maximum out-of-pocket cost limits established by the Internal Revenue Service (IRS); these amounts are updated each year. Under many HDHPs, preventive care and certain other services may be covered without applying the deductible, in line with Affordable Care Act requirements. The lower premium cost is intended to make coverage more affordable for people who do not anticipate high medical expenses and who want to pair their plan with a Health Savings Account.

HDHPs are commonly paired with Health Savings Accounts (HSAs). An HSA is a tax-advantaged savings account that individuals can use to pay for qualified medical expenses. Contributions are tax-deductible, grow tax-free, and withdrawals for eligible medical costs are tax-free. Funds roll over from year to year, and many employers contribute to employees’ HSAs. Eligibility for an HSA requires not having other disqualifying coverage beyond the HDHP, not being enrolled in Medicare, and not being claimed as a dependent on someone else’s tax return.

Advantages of HDHPs include lower premiums and the potential tax benefits of an HSA. Disadvantages include higher out-of-pocket costs before meeting the deductible and the need for careful budgeting for medical expenses. HDHPs may be suitable for individuals who are generally healthy, prefer lower ongoing costs, and want to prioritize contributing to an HSA for future medical expenses.