This article has been updated for the 2023 & 2024 tax years. 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 that declaration from people who were curious to know more about HDHPs and I thought it may be beneficial to dedicate an article towards the topic. In this article we’ll cover HDHP basics: what they are, deductible amounts, out-of-pocket maximums, HSA eligibility, and more.
What is an HDHP?
An HDHP is a type of health insurance plan that offers lower monthly premiums than more traditional plans like PPOs or HMOs 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. And HSAs are a significant improvement over FSAs. More on HSAs later.
What are HDHP Minimum Annual Deductibles?
A 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 HDHP annual deductible amount as dictated by the IRS are in order for a plan to be characterized as an HDHP are:
2023 minimum HDHP annual deductible:
- $1,500 per individual
- $3,000 per family
2024 minimum HDHP annual deductible:
- $1,600 per individual
- $3,200 per family
If you have an HDHP, your insurance will not kick in until you hit at least these minimums. Some HDHPs may have higher deductibles than this.
What are the HDHP Out-of-Pocket Maximums?
A HDHP out-of-pocket maximum, or OOPs, 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 (e.g. car accident, heart surgery, maternity), your out-of-pocket maximum protects you from serious financial hardship and possible bankruptcy.
The IRS HDHP maximum annual out-of-pocket limits for deductibles/co-pays for 2023 are:
2023 HDHP Maximum Out of Pocket Limit (ACA-compliant):
- Single Plan: $9,100
- Family Plan: $18,200
2023 HDHP Maximum Out of Pocket Limit (HSA-qualified):
- Single Plan: $7,500
- Family Plan: $15,000
And the IRS HDHP maximum annual out-of-pocket limits for deductibles/co-pays for 2024 are:
2024 HDHP Maximum Out of Pocket Limit (ACA-compliant):
- Single Plan: $9,450
- Family Plan: $18,900
2024 HDHP Maximum Out of Pocket Limit (HSA-qualified):
- Single Plan: $8,050
- Family Plan: $16,100
Remember, HDHPs are tied to HSAs, and with that comes the ability to contribute to a tax-deductible account. And the HSA contribution deadline for a tax year is the same date as the tax deadline (typically April 15 of the following calendar year). The IRS HSA maximum contribution limits for 2023 and 2024 are:
2023 Maximum HSA Contribution Limits
The maximum HSA contribution amounts for 2023 are:
- Individual Plan: $3,850 (+$200 over prior year)
- Family Plan: $7,750 (+$450 over prior year)
2024 Maximum HSA Contribution Limits
The maximum HSA contribution amounts for 2024 are:
- Individual Plan: $4,150 (+$300 over prior year)
- Family Plan: $8,300 (+$550 over prior year)
These maximum contributions levels include both employer and employee contributions.
As with 401Ks there is a catch up contribution for those age 55 and over. They are as follows:
2023 & 2023 HSA catch-up contribution:
- $1,000 for individuals
- $2,000 for family plans (with 2 individuals age 55+)
These are the maximum contributions levels allowed by the IRS. Your HSA plan maximums may be lower, as employer plan amounts may vary.
Is an HDHP Right for me?
It depends. HDHPs 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 HDHPs?
Check to see if your employer offers a HDHP and what the associated premium, deductible, and maximums are. Some employers offer HDHPs, 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.
Check the public health insurance exchange at healthcare.gov for public plans. You may be eligible for a government subsidy with these plans.
Note that HSAs are not tied to HDHPs. You can transfer funds from one HSA account to another anytime, and your HSA is owned by you, not your employer. I’ve compiled a list of the best HSA accounts for readers. You can transfer funds from any HSA (even ones still administered by your employer) to any other HSA at any time. And you should, as some are awful.
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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