what is a high deductible health plan

High Deductible Health Plans (HDHP): What You Need To Know

And the skyrocketing cost of health care can make dealing with insurance anxiety producing. As the name suggests, HDHPs typically come with lower monthly premiums, but now more than ever, people are jumping on the HDHP bandwagon. But those plans usually have higher deductibles, which means people must spend more money themselves, up to that amount, before their coverage activates to pay medical bills. While this can sound like an appealing option for some, it’s important to understand how HDHPs work and who they’re intended for.

This guide covers all you need to know about HDHPs — what they are, how they work, as well as their benefits and drawbacks and how they compare with traditional health plans. Whether or not you’re in the midst of selecting a health plan, or only want to learn more about how HDHPs arrived at some of their design choices, this can help you make good decisions.

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

An HDHP is a health insurance plan that features lower monthly premiums and higher deductibles. That’s what you spend directly on health care before your insurers pay for costs. In 2025, an HDHP is defined by the IRS as one with a deductible of at least $1,650 for individual health coverage or $3,300 for family coverage. Once you have reached your deductible, you typically begin sharing a percentage of your health care costs with your insurer, who pays the remainder.

One of the biggest benefits to an HDHP is the Health Savings Accounts, or HSAs. An HSA is what you contribute money into — it’s tax-free — and that’s what you use to pay for medical spending. If you’re relatively healthy and you can afford a high deductible, HDHPs can be cheap. But for someone with chronic health conditions, or who uses health care services more frequently, an HDHP might not be the least expensive option.

How HDHPs Work

How HDHPs Work — Knowing how HDHPs work is the first step in determining if they’re right for you. In other words, when you have an HDHP you typically pay out of pocket for most medical-related expenses until you meet your deductible. Once you reach a given percentage of those medical expenses — the deductible — the insurer will pay for all other medical expenses (that are covered by the plan) for the rest of the calendar year either via copayments (for a visit) or coinsurance (for an expense) — once again varying from plan to plan.

Say, for example, your plan has a $2,000 deductible. A high figure means a low deductible. After you have spent as much as you spend on the services at your deductible level, your insurer pays for all your other medical bills — though you may owe something of your own.

AHDHPs provide free preventive care (including annual physicals, screening exams and immunizations) that’s covered by the plan, regardless of whether you reach your deductible. This can encourage early diagnosis and save health care dollars for what is preventive,’” But for what is not preventive, you pay until you hit the deductible.

Pros and Cons of HDHPs

Like any health insurance plan, HDHPs have their pros and cons. Below are some of the key advantages and disadvantages of these plans:

Advantages:

1. Lower Monthly Premiums: The most obvious benefit of an HDHP is the lower monthly premium. Since you’re assuming more responsibility for out-of-pocket costs, the insurer charges lower monthly premiums. This can be beneficial for those looking to save on healthcare costs.

2. Health Savings Account (HSA) Eligibility: One of the biggest benefits of an HDHP is that it can be paired with an HSA. HSAs allow you to save money tax-free for medical expenses, and funds can roll over from year to year, which makes it a useful tool for future healthcare costs. Contributions to an HSA are tax-deductible, further reducing your tax burden.

3. Potential for Long-Term Savings: If you are generally healthy and don’t require frequent medical care, an HDHP may save you money over time. With the lower premiums and ability to contribute to an HSA, you could pay less in overall healthcare costs compared to traditional plans.

Disadvantages:

1. Higher Out-of-Pocket Costs: The most significant downside of an HDHP is the higher deductible. If you need a lot of medical care, you’ll have to pay substantial amounts out-of-pocket before your insurance takes effect. For people with chronic conditions or those who need frequent medical care, the upfront costs may become a financial strain.

2. Risk of Delaying Care: Because of the higher out-of-pocket costs, some people may delay or avoid seeking medical care, which can worsen health conditions. In some cases, individuals may skip necessary treatments or preventive services because they cannot afford to pay until their deductible is met.

3. Financial Strain for Some: While HDHPs can be an affordable option for healthy individuals with savings to cover high deductibles, they can be difficult for those with limited finances or chronic health issues. Meeting the high deductible and out-of-pocket maximum could create a financial burden, especially for families.

Who Should Consider an HDHP?

HDHPs are not ideal for everyone, and it's essential to consider your healthcare needs and financial situation before choosing this type of plan. Below are individuals who might benefit the most from an HDHP:

1. Generally Healthy Individuals: If you rarely need medical care, an HDHP may be a cost-effective choice. Healthy individuals who don’t visit the doctor often and don’t require expensive prescriptions are more likely to save money with an HDHP while still having insurance coverage if needed.

2. People Who Can Afford Higher Upfront Costs: Since HDHPs require you to pay a higher deductible, it’s important to have the financial means to cover these costs upfront. If you have sufficient savings or an emergency fund, an HDHP can allow you to save on premiums while providing a safety net in case of major health issues.

3. Those Looking to Save on Monthly Premiums: If you are on a tight budget but still want health insurance coverage, an HDHP can offer lower premiums compared to traditional plans. If you're willing to take on more risk by covering medical expenses until the deductible is met, this could be an appealing option.

4. People Interested in Building an HSA: If you want to save for future medical expenses, an HDHP paired with an HSA offers a powerful opportunity. HSAs allow you to save and invest money tax-free, making it an excellent tool for long-term savings.

5. Those with Predictable Healthcare Costs: If you have predictable healthcare costs (such as periodic visits for a non-chronic condition), an HDHP can be a good choice. You’ll need to meet the deductible, but after that, your insurance will cover most of your expenses.

HDHPs vs. Traditional Health Plans

When choosing between an HDHP and a traditional health plan, it’s important to understand the key differences between the two.

• HDHPs: As the name suggests, HDHPs have higher deductibles. This means you’ll need to pay more out-of-pocket before your insurer steps in to help. However, in exchange for this higher deductible, you’ll pay lower monthly premiums. HDHPs are also paired with HSAs, providing a way to save for future medical expenses.

• Traditional Health Plans: Traditional health plans come with lower deductibles, meaning your insurer will cover medical costs sooner. However, these plans typically have higher monthly premiums. They may also offer lower out-of-pocket maximums, which can help limit your spending in worst-case scenarios.

For individuals who need frequent medical care, traditional plans may offer more predictable costs and greater coverage. However, HDHPs can be a better choice for those who are healthy and don’t anticipate high medical expenses.

Health Savings Accounts (HSAs)

An important feature of HDHPs is the ability to pair the plan with an HSA. This tax-advantaged account allows you to save money for medical expenses. The money you contribute to an HSA is tax-deductible, and withdrawals for qualified medical expenses are not taxed. Additionally, the funds in your HSA grow tax-free, and unused money rolls over from year to year, making it an effective tool for long-term healthcare savings.

In 2025, the IRS allows individuals to contribute up to $3,650 to an HSA and families up to $7,300. If you're 55 or older, you can contribute an additional $1,000, for a total of $4,650 for individuals and $8,300 for families.

Key Considerations Before Choosing an HDHP

Before enrolling in an HDHP, carefully consider the following factors:

• Assess Your Health and Healthcare Needs: If you have ongoing medical needs or expect frequent doctor visits, a traditional plan may be a better fit.

• Evaluate Your Financial Flexibility: HDHPs require you to cover higher out-of-pocket costs, so ensure that you can manage these expenses if needed.

• Utilize Your HSA: Make the most of the HSA if you choose an HDHP. This can help you save money for medical expenses and reduce your tax burden.

• Check Your Plan’s Network: Ensure the plan's network includes your preferred doctors and hospitals, as some HDHPs have more limited networks.

Conclusion

In conclusion, High-Deductible Health Plans (HDHPs) can be a great option for healthy individuals who want to save on premiums and take advantage of an HSA for future medical expenses. However, they may not be suitable for those with chronic health conditions or people who expect frequent medical care. By evaluating your health, financial situation, and long-term needs, you can determine whether an HDHP is the right choice for you.