High-Deductible Health Plan (HDHP)
What Is a High-Deductible Health Plan (HDHP)?
A High-Deductible Health Plan (HDHP) is a type of health insurance plan that has a higher deductible than traditional health plans. This means policyholders must pay more out of pocket for medical services before the insurance company begins covering costs.
HDHPs typically have lower monthly premiums and are often paired with tax-advantaged savings tools such as a Health Savings Account (HSA).
Why It Matters
HDHPs can make health insurance more affordable by reducing monthly premium costs. They are also the only type of health plan that allows individuals to contribute to a Health Savings Account, which offers tax advantages for healthcare savings.
However, the higher deductible means policyholders must be prepared to cover more initial medical expenses.
How a High-Deductible Health Plan Works
With an HDHP, the policyholder pays for most medical expenses until the deductible is reached.
Once the deductible is met:
- the insurance company begins sharing costs
- policyholders may pay coinsurance for certain services
- spending counts toward the out-of-pocket maximum
Preventive services such as annual checkups are often covered before the deductible.
Example
An HDHP may require a policyholder to pay the first $2,000 of medical expenses before insurance coverage begins sharing the cost.
HDHP vs Traditional Health Plan
- HDHPs have higher deductibles and lower premiums.
- Traditional health plans typically have lower deductibles but higher premiums.
FAQs About High-Deductible Health Plans
Who should consider an HDHP?
Individuals who want lower premiums and are comfortable managing higher upfront healthcare costs.
Can HDHP members use Health Savings Accounts?
Yes. HDHP eligibility is required to contribute to an HSA.
Do HDHPs cover preventive care?
Many preventive services are covered before the deductible.
Related Terms
- Health Savings Account (HSA)
- Flexible Spending Account (FSA)
- Health Insurance Deductible
- Out-of-Pocket Maximum
- Healthcare Costs
