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Home » Health, Health Insurance, HSA's

What is a High Deductible Health Plan (HDHP)?

Last updated by on 11 Comments

I previously mentioned that I had moved to a new high deductible health plan (HDHP) that my employer started offering during open enrollment.

I have had a few questions since around that declaration from people who were curious to know more about HDHP’s and I thought it may be beneficial to dedicate a post towards the topic.

What is an HDHP?

An HDHP is a type of health insurance plan that offers lower monthly premiums than more traditional plans like PPO’s or HMO’s in exchange for a higher deductible – hence the name “high deductible health plan”.

They are usually paired with a health savings account (HSA) that allows you and/or your employer to make tax deductible contributions to. You can later use the HSA to pay for your medical expenses, tax free.

More on HSA’s later.

What is a Health Insurance Deductible?

HDHPA health insurance deductible is the amount that you must pay before health insurance kicks in and starts paying. The deductible is an annual amount that usually resets at the beginning of the calendar year.

Once you’ve hit your annual deductible, then your insurance kicks in and starts helping. The HDHP may pay 80%, 90%, 100%, etc. of your health care costs at that point – it will vary based on your individual plan.

The minimum deductible amount for an HDHP as dictated by the IRS is $1,250 per individual and $2,500 per family in 2014. In other words, if you have an HDHP, your insurance will not kick in until you hit at least these minimums. Some HDHP’s may have higher deductibles than this.

What are HDHP Maximums?

A HDHP out-of-pocket maximum, or OOP’s, is the maximum amount you or your family are required to pay in any given year, before the HDHP covers any additional medical costs 100%.

This is important because if you have a high cost event or series of events (i.e. car accident, heart surgery, maternity), your out-of-pocket maximum protects you from serious financial hardship and possible bankruptcy.

The IRS HDHP maximum out-of-pocket limits for deductibles/co-pays for 2014 are:

  • Single Plan: $6,350
  • Family Plan: $12,700

Remember, HDHP’s are tied to HSA’s, and with that comes the ability to contribute to a tax-deductible account. The IRS HSA maximum contribution limits for 2014 are:

  • Single Plan: $3,300 (up from $3,250)
  • Family Plan: $6,550 (up from $6,450)

As with 401K’s there is a catch up contribution for those age 55 and over. The 2014 HSA catch-up contribution is $1,000 for both single and family plans.

Your plan’s maximums may be lower, each plan varies.

Is a HDHP Right for me?

It depends. HDHP’s are generally great for those under 50 who have no serious documented health complications because the monthly premiums can be significantly lower than traditional HMO and PPO plans.

And if you’re in good health, your out-of-pocket expenses are likely going to be low. I ultimately made the switch because I am young and haven’t had more than 1 or 2 doctor visits in any given year in the last decade (knock on wood). This means that I probably haven’t spent more than a few hundred $ in any given year on health related costs.

I’m also in the situation where my employer offers an HSA with their HDHP and contributes an amount equal to my annual deductible to it. Anything I don’t spend rolls over every year, and in a few years I would have enough to cover an annual out of pocket maximum. Plus my premiums are lower with the HDHP vs. a PPO. So it makes a lot of sense for me.

These are the things you should be considering when deciding to switch to a high deductible plan:

  • What is my present health?
  • What will my annual deductible be?
  • How do the premiums compare to a standard plan?
  • What is the maximum out-of-pocket?
  • Where can I find a HDHP?

If you are young and healthy, it is generally financially beneficial to view health insurance as a means to cover you in the event of very high cost events versus a way to cut the costs that may occasionally come up because you may end up paying more for your premiums than you are saving.

Where can I Find HDHP’s?

Check to see if your employer offers a HDHP and what the associated premium, deductible, and maximums are. Some employers offer HDHP’s, others do not.

Even if your employer does offer one, ALWAYS compare it to what is available on the free market. In many cases you will be able to find a cheaper alternative than what your employer offers.

The best source for comparing HDHP’s that I’ve found is eHealthInsurance.com. It’s an aggregator that compares the prices of dozens of insurers, which is key because prices can vary wildly based on age, gender, and health history. You need to shop around. I found my term life insurance plan there and have compared HDHP’s there too.

HDHP Discussion:

  • Do you have an HDHP? How long have you had it? What has your experience been?
  • What are your HDHP premiums, deductibles, and maximums?

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About the Author
I am G.E. Miller, & this is my story. My goal is financial independence ASAP. If you share that goal, join me & 7,500+ others by getting FREE email updates. You'll also find every post by category & every post in order.


11 Comments »
  • Alana says:

    I have had an HDHP through my employer for about a year and a half. I chose it because, like you mentioned, G.E. I’m young and I tend to visit the doctor once per year (with the occasional visit for a bad cold, flu shot etc.) My favoirte part though, is the HSA. It’s allowed me to build up essentially another emergency fund and that gives me peace of mind because if I do have an unexpected health related cost, I don’t have to drain my real emergency fund. It’s great that the money in the HSA rolls over too, or else it probably would not be worth it to me.

  • Mike says:

    So this wouldn’t be a good idea if someone were diabetic?

  • Trevor says:

    I too have an HDHP HSA combo. I have had this type of coverage for a few years now and except for the birth of a couple children (which were 90% covered after deductibles) it has worked out to make real financial sense. Plus I don’t have to deal with all the extra hoops I would have to jump through had I gone with the HMO that my company offers. I only made that mistake once.

  • Ron Ablang says:

    I’ve had my HDHP HSA combo since Jan 2010 and I’ve been really happy w/ it. Mathematically, contributing the max to my HSA ($6150/yr) ended up being cheaper than paying traditional premiums so for me it was a no-brainer. The max deductible for me was $3000/yr. My child was born last year in July. That cost about $2000, but it maxed out our deductible and expenses the rest of the year were free.

  • Sun says:

    My employer HMO or pop is $1000 deductible. So, we are not eligible for the hsa. I kind of wish I could get a $1200 deductible so we can have a tax shelter and health emergency fund with the hsa.

  • Dave G says:

    For 2013, I have chosen my Option 3 medical benefits plan which is the HDHP. $2,250/Individual and $4,500 family. I will also contribute to an HSA. I currently have two daughters in college with monthly birth control prescriptions. Trying to understand Obamacare,it states starting August 2012, deductables and co-payments will not be charged for birth control prescriptions. Since my medical benefits is a high deductable type, are all my bith control prescriptions costs covered under my option 3 medical benefits plan?

  • Jose says:

    I’m on my third year of being on a HDHP. I chose it because unfortuantely, my family has high medical bills. In the last two years we have hit the maximum out of pocket by June, which is rough on the HSA but amounts to zero co pay or deductibles for the rest of the year. That’s worked out well for us.

  • Aaron says:

    I’m a little confused. Why is the max yearly HSA contribution less than the max out-of-pocket limit for the HDHP? It seems like the HSA max contribution should at least be equal so a family or individual could cover all their health care expenses in a given year using the HSA. I know it rolls over, but then it would take 2 years at a minimum to save enough in the HSA to meet the max out-of-pocket. And that means not making any withdrawals, too. Am I looking at it wrong?

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