Malcolm Rivera
A high-deductible health plan (HDHP) is a health insurance plan with a higher annual deductible than a traditional insurance plan. The monthly premium is usually lower, but you pay more healthcare costs yourself before the insurance company starts to pay its share. An HDHP can be combined with a health savings account (HSA) to save money on eligible expenses. According to the IRS, an HDHP must have a deductible of at least $1,650 for an individual or $3,300 for a family. The maximum out-of-pocket expenses for an HDHP are $8,300 for an individual plan and $17,000 for a family plan.
| Characteristics | Values |
|---|---|
| Monthly Premium | Lower |
| Health Care Costs | Higher |
| Deductible | Minimum $1,500 for an individual plan and $3,000 for a family plan. For 2025, the Internal Revenue Service (IRS) defines a high-deductible health plan as any plan with an annual deductible of at least $1,650 for an individual or $3,300 for a family. For 2026, the IRS guidelines state a deductible of at least $1,700 for an individual plan and $3,400 for a family plan. |
| Out-of-pocket Limit | No higher than $8,500 for an individual plan or $17,000 for a family plan |
| Tax Advantages | Tax-free distributions from the Health Savings Account (HSA) to pay for qualified medical expenses. |
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What You'll Learn
Lower monthly premiums
A high-deductible health plan (HDHP) is a health insurance plan with a higher deductible than a traditional insurance plan. The monthly premium is usually lower, but you pay more healthcare costs yourself before the insurance company starts to pay its share (also known as your deductible).
The Internal Revenue Service (IRS) defines a high-deductible health plan as any plan with an annual deductible of at least $1,650 for an individual or $3,300 for a family. The out-of-pocket limit is the most you'll have to pay in a year for medical expenses covered by your insurance plan. For 2025, the out-of-pocket maximum for an HDHP is $8,300 for an individual plan and $17,000 for a family plan.
While HDHPs offer lower monthly premiums, it's important to consider that they come with higher annual deductibles. This means that you may need to pay more upfront for doctor visits, tests, and prescriptions before meeting your deductible and having your insurance plan start paying. For those with chronic health conditions or ongoing treatments, the higher deductible may result in higher overall costs. It is essential to weigh the lower monthly premiums against potential higher out-of-pocket expenses to determine if an HDHP is the right choice for your financial and healthcare needs.
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Higher annual deductibles
A high-deductible health plan (HDHP) is characterised by higher annual deductibles than traditional insurance plans. The deductible is the amount you pay out-of-pocket for medical expenses before your insurance company starts to pay its share. With a high-deductible plan, you typically pay a lower monthly premium but a higher deductible, meaning you pay more healthcare costs yourself before the insurance company begins to pay.
For 2025, the Internal Revenue Service (IRS) defines a high-deductible health plan as any plan with an annual deductible of at least $1,650 for an individual or $3,300 for a family. These figures are slightly higher than the 2026 IRS guidelines, which set the minimum deductible at $1,700 for an individual plan and $3,400 for a family plan.
The maximum out-of-pocket expenses for an HDHP are also regulated. For an individual plan, the out-of-pocket limit must be no higher than $8,500, while for a family plan, the maximum is $17,000. These limits represent the most you will have to pay in a year for medical expenses covered by your insurance plan.
It is important to note that the out-of-network deductible is separate from the in-network deductible. Even if you have met your in-network deductible, you will still be responsible for the cost of any out-of-network care. Therefore, it is crucial to consider the cost-share variations between different plans.
HDHPs can be paired with a Health Savings Account (HSA), which offers tax advantages. An HSA is a type of savings account that lets you set aside money on a pre-tax basis to pay for qualified medical expenses. By combining an HDHP with an HSA, you can save money on eligible expenses and offset out-of-pocket costs not covered by the plan.
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Out-of-pocket expenses
In a high deductible health plan (HDHP), the deductible amount is higher than in a traditional insurance plan, which means you pay more healthcare costs yourself before the insurance company starts paying its share. HDHPs often have lower monthly premiums, so you pay less upfront. The money saved on premiums can be used to offset out-of-pocket expenses by putting it into a Health Savings Account (HSA).
An HSA is a type of savings account that lets you set aside money on a pre-tax basis to pay for qualified medical expenses. This includes certain dental, drug, and vision expenses. By combining an HDHP with an HSA, you gain flexibility in how you use your healthcare dollars, as the funds can cover qualified medical expenses not typically covered by your health plan.
The out-of-pocket limit for an HDHP must be no higher than $8,500 for an individual plan or $17,000 for a family plan. This limit ensures that you don't face financial ruin due to a year of high healthcare costs. It's important to note that your premium payments don't count towards your out-of-pocket maximum, and you'll continue to pay them even after reaching that maximum.
When considering an HDHP, it's essential to weigh the potential savings on premiums against the possibility of higher out-of-pocket expenses. HDHPs are generally suitable for those with low medical expenses who want to save on premiums and take advantage of tax benefits through an HSA.
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Tax advantages
A high-deductible health plan (HDHP) is a health insurance plan with a higher deductible than a traditional insurance plan. The monthly premium is usually lower, but you pay more healthcare costs yourself before the insurance company starts to pay its share.
HDHPs are compatible with Health Savings Accounts (HSAs), which are tax-advantaged savings accounts that can be used to cover medical expenses. Here are some of the tax advantages of HSAs:
Tax-deductible contributions
You may be able to claim a tax deduction for contributions you or someone other than your employer make to your HSA. These contributions can be made on a pre-tax basis, reducing your taxable income.
Tax-free growth
Any interest or earnings on the assets in your HSA are federal income tax-free. This allows you to grow your savings without paying taxes on the growth, which can lead to faster accumulation of funds for medical expenses.
Tax-free withdrawals for qualified medical expenses
You can make tax-free withdrawals from your HSA to pay for qualified medical expenses. These expenses can include things like dental, drug, and vision expenses. However, if you use your HSA to pay for non-medical expenses, you will have to pay income taxes and possibly a penalty on the amount you withdraw.
Reduced state income taxes
In certain states, HSA contributions may reduce your state income taxes. This can provide additional tax savings on top of the federal tax advantages.
Overall, the tax advantages of HSAs can help offset the higher out-of-pocket costs associated with HDHPs and make these plans more financially attractive to individuals and families with low healthcare needs.
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HSA eligibility
A High Deductible Health Plan (HDHP) is a health insurance plan with a higher deductible than a traditional insurance plan. The monthly premium is usually lower, but you pay more health care costs yourself before the insurance company starts to pay its share.
A Health Savings Account (HSA) is a type of savings account that lets you set aside money on a pre-tax basis to pay for qualified medical expenses. By using untaxed dollars in an HSA to pay for deductibles, copayments, coinsurance, and some other expenses, you may be able to lower your overall healthcare costs. HSA funds generally may not be used to pay premiums.
HSA-eligible plans (also called HDHPs) have deductibles that are often significantly higher than the minimums and can be as high as the maximum out-of-pocket costs. The out-of-pocket limit is the most you'll have to pay in a year for medical expenses covered by your insurance plan. For 2026, an HDHP is defined by the IRS as a health insurance plan with a deductible of at least $1,700 for an individual plan or a deductible of at least $3,400 for a family plan.
To be eligible for an HSA, you must participate in an HDHP, have no other insurance coverage (except those specifically allowed), and not be claimed as a dependent on someone else's tax return. Other coverage that would cause ineligibility includes a health care flexible spending account (HCFSA), a spouse's FSA, a spouse's family enrollment in an HMO, other non-high deductible health insurance coverage, TRICARE, Medicare, or receipt of VA or IHS healthcare benefits within the previous three months. You can still have other disability, dental, vision, and long-term care insurance policies.
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Frequently asked questions
A high-deductible health insurance plan, or HDHP, is a plan with a higher deductible than a traditional insurance plan.
A deductible is the amount you pay out-of-pocket for medical expenses before your insurance pays anything.
HDHPs tend to have lower premiums than other health insurance plans. They can also be paired with a Health Savings Account (HSA), which lets you set aside money on a pre-tax basis to pay for qualified medical expenses.
With an HDHP, you pay more healthcare costs yourself before the insurance company starts to pay its share. This means that if you have frequent doctor visits or treatments, your out-of-pocket costs could be higher. Additionally, your out-of-network deductible is separate from your in-network deductible, so you would be responsible for the full cost of any out-of-network care.
