What Is a High Deductible Health Plan?
Definition & Examples of High Deductible Health Plans
A high deductible health plan (HDHP) has lower monthly premiums and a higher deductible than other health insurance plans. For 2020, the Internal Revenue Service (IRS) defines an HDHP as one with a deductible of $1,400 or more for an individual or $2,800 or more for a family.
Learn the attributes of an HDHP and its potential advantages and disadvantages compared with other health insurance options.
What Is a High Deductible Health Plan?
An HDHP can be a more affordable type of health insurance in terms of monthly premiums. But as the name suggests, the deductibles are higher than those for a traditional plan, and you will need to pay off your substantial annual deductible before your insurance provider will start paying for any of your health expenses.
An employer-sponsored HDHP may be paired with a health savings account (HSA) or health reimbursement arrangement (HRA). Workers can set aside pre-tax income in an HSA to put money toward their deductible or to pay for health expenses as they occur. However, HSA funds typically can not be used to pay for health insurance premiums. Employers may also contribute to an employee's HSA.
Only workers with an HDHP can participate in an HSA.
An HRA is funded by an employer to enable workers to pay themselves back—with tax-free money—for medical expenses they've incurred. To participate in an HRA, an employee—and possibly their family members—may be required to be enrolled in a health insurance plan. HRA funds may in some cases be used to pay for health insurance premiums.
- Acronym: HDHP
Money in an HSA or HRA can be rolled over and used in a subsequent year.
How Does an HDHP Work?
The deductibles for an HDHP are often higher than the minimums of $1,400 (individual) and $2,800 (family). They may be as high as the maximum out-of-pocket (OOP) costs, which are $6,900 for an individual and $13,800 for a family in 2020. In addition to deductibles, maximum OOP costs include co-payments and coinsurance but exclude premiums and costs not covered by your HDHP, including out-of-network expenses.
All plans purchased through an Affordable Care Act (ACA) Marketplace and most plans purchased through other means are required to cover certain preventive services at an in-network provider regardless of how much of your deductible you've paid. HealthCare.gov provides lists of those covered preventive services for adults of both sexes and those specifically for women and children.
In addition, the IRS has offered guidance on the types of preventive services HDHPs may—but are not required to—offer without the patient meeting the deductible or with a deductible that is less than the annual minimum. The initial list of preventive services was released in 2004, and additional services were added in 2019.
Pros and Cons of an HDHP
If you are healthy, don't visit the doctor often, and don't have a large family, an HDHP may be the most economical type of health insurance plan for you. If you don't have an existing medical condition, you may not have to pay too many medical bills during a given year and you might find an HDHP works for you.
An HDHP may also be right for you if you have a lot of liquid savings. It's not always possible, but if you choose to purchase an HDHP (and with some employers, this may be your only choice), you should ideally have enough cash on hand to cover your deductible and other OOP costs.
The obvious downside to an HDHP is that you are responsible for paying off your high deductible while also paying your monthly premiums, which, although likely lower than those for traditional insurance plans, may not be easily affordable.
In an ACA Marketplace for health insurance, bronze plans typically have the highest deductibles and lowest premiums. The average lowest-cost, bronze-level, monthly premium for a 40-year-old is $331 in 2020.
Some people with an HDHP postpone or forgo necessary medical treatment because they don't have the money to pay for it and they haven't paid off their deductible. In a survey conducted by the Kaiser Family Foundation that was reported in June 2019, half of adults said either they or a family member had delayed or gone without medical care (including dental care) because they couldn't afford the expense.
If you have a chronic medical condition and need to visit doctors frequently, an HDHP may not be the best option for you.
- A high deductible health plan has lower monthly premiums and a higher deductible than other plans.
- For 2020, the IRS defines an HDHP as one with a deductible of $1,400 or more for an individual or $2,800 or more for a family.
- A health savings account or health reimbursement arrangement can help you cover the costs of health care.
- The deductible for an HDHP may be as high as $6,900 for an individual and $13,800 for a family in 2020.