The term high-deductible health plan (HDHP) refers to a health insurance plan with a sizable deductible for medical expenses. An HDHP typically has a larger annual deductible than a typical health plan but comes with lower monthly premiums. These plans fully cover routine preventive care without making individuals responsible for copays or coinsurance.
The minimum deductible may vary each year. As of 2023, an HDHP is defined by the IRS as a plan with a deductible of at least $1,500 for individuals and $3,000 for families.
Key Takeaways
- Sizable Deductibles with Lower Premiums: HDHPs have considerable annual deductibles with lower monthly premiums.
- Eligibility for Health Savings Accounts: Only HDHPs qualify for tax-advantaged health savings accounts (HSAs).
- Ideal Candidates: HDHPs are best suited for younger, healthier individuals who expect few medical needs beyond emergencies or preventive care. Wealthier families can benefit too.
- Cost-Conscious: HDHPs make people more mindful of medical costs, potentially leading to lower overall healthcare expenses.
Understanding a High-Deductible Health Plan (HDHP)
An HDHP comes with significant out-of-pocket deductibles that insured individuals must pay before the policy’s coverage activates. This design aims to lower overall healthcare expenses by making insured individuals more aware of what medical services cost. It also leads to affordable premiums.
HDHP subscribers benefit from covered routine preventive services without copays or coinsurance, including services like:
- Blood pressure screening
- Depression screening
- Diet and nutritional counseling
- HIV screening
- Immunizations (e.g., chickenpox, flu, measles)
HDHPs include an annual catastrophic limit on out-of-pocket expenses for in-network services. For 2023, the maximum out-of-pocket limit is $7,500 for individuals and $15,000 for families. Upon reaching this limit, the plan covers 100% of the expenses for in-network care.
Special Considerations
One of the significant advantages of HDHPs is the ability to open a tax-advantaged Health Savings Account (HSA). HDHPs and HSAs work jointly, allowing policyholders to save pre-tax funds for various medical costs not covered under the HDHP, including:
- Acupuncture
- Dental services
- Vision care
- Prescription drugs
- Psychiatric treatments
- Other qualifying medical expenses
Unlike Flexible Spending Accounts (FSAs), unused contributions to HSAs roll over indefinitely. This provision can lead to accumulated funds that can be used freely in retirement.
Advantages and Disadvantages of an HDHP
Advantages
- Lower monthly premiums help manage immediate costs.
- HSA compatibility, offering tax-free savings to cover high deductibles and additional medical expenses.
Disadvantages
- High out-of-pocket costs before insurance starts covering expenses.
- Risk of higher financial burden in case of unexpected medical emergencies.
Pros:
- Lower monthly premiums
- Works with a health-savings account, which is tax-free and covers qualified medical expenses
Cons:
- Higher out-of-pocket costs
- Higher deductibles
Example of an HDHP Usage
Consider a 30-year-old individual in good health without underlying conditions. This person can benefit from an HDHP if their needs primarily revolve around preventive care like flu shots or nutritional counseling. However, they should be prepared to cover high out-of-pocket costs in case of medical emergencies.
Qualification and Costs
What Qualifies as a High-Deductible Health Plan for an HSA?
An individual must be enrolled in an HDHP without any other health insurance to qualify for a Health Savings Account.
How Much Does a High-Deductible Health Plan Cost?
For 2023, an HDHP’s minimum deductible is $1,500 for individual coverage and $3,000 for families. Maximum out-of-pocket expenses are capped at $7,500 for individuals and $15,000 for families. Monthly premiums will vary based on the insurer.
Coverage Under an HDHP
HDHPs cover preventive care services without the necessity of copays or coinsurance, including:
- Blood pressure screening
- Depression screening
- Diet and nutritional counseling
- HIV screening
- Immunizations (e.g., chickenpox, flu, measles)
Non-qualified medical expenses, such as acupuncture, vision care, and dental services, aren’t typically covered. However, HSAs can assist in covering these costs when combined with an HDHP.
Who Offers High-Deductible Health Plans?
HDHPs can be obtained through employers or government healthcare exchanges.
The Bottom Line
Choosing an HDHP can be a pivotal decision aligned to your financial and health needs. While these plans accommodate people who infrequently require advanced medical treatments, they demand readiness to handle higher out-of-pocket expenses. Evaluate your financial goals, medical history, and projected healthcare needs carefully before opting for an HDHP.
Related Terms: Health Insurance, Deductible, Insurance Premiums, Health Savings Account, Preventive Care, Out-of-Pocket Costs, Copays, Coinsurance.
References
- Internal Revenue Service. “Rev. Proc. 2021-25”.
- Internal Revenue Service. “Rev. Proc. 2022-24”.
- Health Insurance Marketplace. “Glossary: Deductible”.
- Health Insurance Marketplace. “High Deductible Health Plans (HDHPs) & Health Savings Accounts (HSAs)”.
- Internal Revenue Service. “Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans”, Pages 3-4.
- U.S. Congress. “H.R.1 - Medicare Prescription Drug, Improvement, and Modernization Act of 2003: Summary”.
- Internal Revenue Service. “Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans”, Page 3.
- Internal Revenue Service. “Publication 502, Medical and Dental Expenses (Including the Health Coverage Tax Credit)”, Pages 5-15.
- Internal Revenue Service. “Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans”, Pages 3, 10.
- Internal Revenue Service. “Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans”, Page 8.
