High Deductible Health Plan (HDHP) - Glossary (2024)

FAQs

High Deductible Health Plan (HDHP) - Glossary? ›

A 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 (also called your deductible).

Save for your deductible

You will have more than 60% of this amount saved in your HSA. Per IRS guidelines in 2025, an HDHP is a health insurance plan with a deductible of at least $1,650 if you have an individual plan or a deductible of at least $3,300 if you have a family plan.

The main drawback to choosing an HDHP is having potentially high out-of-pocket expenses when you receive covered services during the year.

On the flip side, a traditional PPO plan typically has a lower deductible and lower out-of-pocket maximum than an HDHP. For example, let's say you receive a medical bill for $5,000. Under an HDHP, your deductible might be $3,000.

An HDHP is health coverage with a: Higher annual deductible than typical health plans and. Maximum limit on the sum of the annual deductible and out-of-pocket medical expenses that the taxpayer must pay for covered expenses. Out-of-pocket expenses include copayments and cost sharing but do not include premiums.

There is no 20% penalty on excess contributions. If you no longer are enrolled in an HDHP you are not eligible to make contributions to your HSA, but you may request withdrawals for qualified medical expenses.

If you're in good health, rarely need prescription drugs, and don't expect to incur significant medical expenses in the coming year, you might consider an HDHP. In trade for lower premiums, HDHPs require you to meet your deductible before you get any coverage for treatment other than preventive care.

The bottom line

In some cases, HDHPs can help you save money by allowing you to pay lower premiums and giving you a tax break through an HSA. Your employer may contribute to your HSA, too. Plus, you may save money if the plan covers all of your routine care. But HDHPs aren't always the most affordable option.

The amount of your deductible depends on the plan you choose. If you choose a plan with a higher deductible, you may be required to pay more out-of-pocket costs in order to reach your deductible.

Do copays count towards deductible? ›

Copays do not count toward your deductible. This means that once you reach your deductible, you will still have copays. Your copays end only when you have reached your out-of-pocket maximum.

What if I decide to switch from a HDHP to a traditional PPO plan? If you are no longer on a qualified HDHP, you can still use your funds to pay for medical expenses, but you cannot contribute to the account. Keep in mind that an HSA can also pay for things like Medicare premiums in the future.

If you are generally healthy and don't have pre-existing conditions, a plan with a higher deductible might be a better choice for you. Your monthly premium is lower since you're only visiting the doctor for annual checkups, and you're not in need of frequent health care services.

The Testing Period

In other words, if you become eligible under an HDHP by December 1, you have to remain covered by an HDHP until December 31 of the following year (the last day of the 12th month).

Namely, you're responsible for paying a larger portion of your healthcare expenses out of pocket. This can be a significant financial burden for those with a lot of medical expenses and could lead to financial strain. HDHPs may not be the best choice for those with chronic or frequent medical needs.

So HDHPs cannot have copays for office visits or prescriptions before the deductible is met (as opposed to a plan that's got a high deductible but also offers copays for office visits from the get-go; people might generally consider the latter to be a high deductible plan, but it's not an HDHP).

For families, the deductible has to be at least $2,700, with a $13,500 max out-of-pocket. Many high deductible plans actually have a much higher deductible ($5,000-$7,000).

For calendar year 2024, a “high deductible health plan” is defined under § 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,600 for self-only coverage or $3,200 for family coverage, and for which the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not ...

The IRS defines high-deductible health plans for 2023 as: Individual plans with deductibles of at least $1,500. Family plans with deductibles of at least $3,000.

Key takeaways. Low deductibles are best when an illness or injury requires extensive medical care. High-deductible plans offer more manageable premiums and access to HSAs. HSAs offer a trio of tax benefits and can be a source of retirement income.