Health care costs, like premiums, copays, and other out-of-pocket expenses, can add up quickly. So you might be wondering if there's a way to reduce expenses without sacrificing quality care. A high-deductible health plan (HDHP) could be a good alternative. HDHPs may offer lower premiums than some plans—but they also have unique considerations. Here's how they work, plus how you could maximize your savings by pairing this insurance plan with a health savings account (HSA).
What is a high-deductible health plan (HDHP)?
A high-deductible health plan (HDHP) is a popular type of health insurance plan that may offer lower premiums than some other plans. Those lower monthly premiums are in exchange for a higher deductible. That's how much you'll have to shell out for covered services, beyond your premiums, before your insurer starts kicking in their share. This may be a nonissue if you have relatively low medical expenses. If not, though, you could face steep out-of-pocket costs. In 2024, the minimum deductible for an HDHP is $1,600 for an individual plan and $3,200 for family coverage, but some plans have even higher deductibles.1
How does a high-deductible health plan work?
You may pay less in premiums for HDHPs in exchange for you taking on the risk you might have to meet a higher deductible before they cover a percentage of your covered health care expenses. Because of that high deductible, you could spend thousands of dollars on medical bills before receiving any help from your insurer. If you wind up needing a lot of medical care during a certain year, you might pay more than you would with a plan with a lower deductible. But if you end up having fewer medical expenses, the total amount you spend on health insurance costs might be lower than on plans with higher premiums.
Once you meet your deductible, your insurer will start paying for some or all of your covered health-care costs. How much your insurer contributes to covered health care expenses after your deductible is met depends on the specifics of your plan. No matter what percentage of costs they cover, annual out-of-pocket expenses are limited to $8,050 for self-only coverage and $16,100 for family coverage.2
High-deductible health plans may cover preventive services like annual check-ups, vaccinations, and screenings, with no deductible or at least a minimum annual deductible.
What are the advantages of an HDHP?
HDHPs offer the following benefits.
- You'll score lower premiums. That can free up more cash to put toward your financial goals or regular living expenses.
- You likely can pair an HDHP with an HSA. Chances are, your high-deductible health plan is HSA-eligible, meaning having an HDHP gives you the right to open an HSA. Money you put into an HSA is tax-deductible. If your employer provides you the option to contribute to your HSA via your paycheck, then the contribution is made pre-tax and is not considered tax-deductible when you file.
- You might be more motivated to shop around. Since you could face significant out-of-pocket costs, you might feel inclined to compare prices for medical services and medications. That could save you even more money in the long run.
What are the disadvantages of a high-deductible health plan?
Now for the drawbacks of enrolling in an HDHP.
- You could run up serious out-of-pocket costs. No one can predict the future. If you have a medical emergency or just get any unplanned care, you might be saddled with thousands of dollars in bills. That can pose a serious challenge if you don't have enough saved to cover your deductible.
- You might put off getting the care you need. If money is tight and you're up against a high deductible, you might delay getting necessary medical care. That could affect your health and even lead to more expenses down the line.
- It might not be ideal for folks who require ongoing medical care, like managing a chronic condition or needing to undergo expensive annual screenings. For example, if you have a family history of colon cancer, your doctor might suggest routine colonoscopies earlier than the generally recommended age. That could translate to significant out-of-pocket costs. If you expect you'll need recurring care, run the numbers on what it'd cost you on both an HDHP and a lower-deductible plan to help determine which is most cost-effective.
High-deductible health plans vs. low-deductible health plans
| High-deductible health plan | Low-deductible health plan | |
|---|---|---|
| Out-of-pocket maximum limits | $8,050 for single coverage in 2024; $16,100 for family coverage3 | For Marketplace plans through the Affordable Care Act Exchange, $9,450 for single coverage in 2024; $18,900 for family coverage4 |
| Preventive care coverage | Yes | Yes |
| Ability to contribute to an HSA | Yes for many, though not all, plans | No |
Let's say Mary has a $0-deductible health plan with a $730 monthly premium. Joe has an HDHP with a $1,600 deductible and a monthly premium of $630. Joe will pay $1,200 less per year in premiums—and have the ability to contribute to an HSA.
Now let's pretend Joe runs into a medical emergency that costs $2,000. He'd have to pay $1,600 up front before his insurance kicks in (that's the legal minimum deductible for single coverage from a high-deductible health plan in 2024)—and then he still might owe a percentage of the remaining $400. Mary, on the other hand, wouldn't be on the hook for a deductible: Her insurance would pay its share right away. So Mary might save a few hundred dollars over Joe throughout the year if you factor in their premium and emergency care costs, though it's also possible Joe would pay less than Mary depending on coinsurance percentages, aka the percentage the insured person pays toward covered expenses.
HDHP vs. PPO
Preferred provider organization (PPO) health plans are the most common health insurance plan employers offer. A PPO offers a network of providers and generally doesn't require referrals. Employees can use out-of-network providers, though might pay more than they would by getting in-network care. In this way, PPOs tend to be more flexible than health maintenance organization (HMO) plans. An HMO is a network of health care providers who have agreed to accept certain levels of payment for the services they provide. After enrolling in an HMO, you need to choose a primary care physician (PCP) because HMOs require referrals from your PCP to see specialists. HMOs typically don't cover out-of-network care at all unless it's an emergency, and you'd likely need a referral to see a specialist.
PPOs tend to have higher monthly premiums and lower deductibles—which is the opposite of how an HDHP is structured. HDHPs may have higher deductibles and lower premiums, but they might limit your choice of providers. Still, it's possible for a health insurance plan to be both a PPO and an HDHP, as a PPO is a type of health insurance plan.
How does an HDHP work with an HSA?
If you're enrolled in an HDHP and meet other eligibility criteria, your HDHP may be HSA-eligible. So if that's true, you may contribute to an HSA and pay for qualified medical expenses. Making HSA contributions can help create a cash cushion to offset the higher deductibles that HDHPs typically have. But you don't have to contribute anything. Contributions to an HSA are totally separate from the premiums you pay for your HDHP. Still, you might want to open and contribute to an HSA because HSAs are considered "triple" tax advantaged.5
HSA contributions are tax-deductible if you make contributions from your take-home pay (aka after-tax dollars).
If your employer provides you the option to contribute to your HSA via your paycheck (similar to 401(k) or other retirement plan contributions), then the contribution is made pre-tax (before taxes are taken out) and is not considered tax-deductible when you file.
The money isn't taxed while it's in the account—even if it earns interest or investment returns.
You won't be taxed on withdrawals that are used for qualified medical expenses, like deductibles and copayments for health care services and other out-of-pocket costs like prescription medications and even certain sunscreens.
In 2024, you can contribute up to $4,150 to an HSA if you have self-only coverage. The contribution limit jumps to $8,300 for family coverage. The HSA contribution limits for 2025 are $4,300 for self-only coverage and $8,550 for family coverage. You and your employer may both contribute to your HSA, though the overall contribution limit remains the same, regardless of how much your employer puts in.
Unlike health care FSAs, which your employer technically owns, your HSA belongs to you. HSAs are not strictly offered through your employer. So when you leave a job, you keep all of the money you've saved up in your HSA and can transfer into a new HSA. Unused funds remain in your account from year to year, allowing you to potentially build substantial savings over time. And when you turn 65, you can use HSA funds for non-medical expenses without penalty. (FYI, those withdrawals would be considered taxable.)
Should you enroll in an HDHP?
Whether you enroll in an HDHP really depends on your health care needs and how easy it would be for you to cover unplanned health care costs should they arise. If you've had health insurance before, check out how previous health coverage has suited you. If you didn't come close to meeting your deductible, and you didn't need a lot of care, a plan with lower premiums and a higher deductible might be worth considering. Even if this is your first time choosing health insurance, ask yourself: Does your employer contribute to an HSA if you pick a plan that offers one? That could lead to what's essentially free money. Or do you want an HSA for its tax advantages? If so, you might want to pick an HDHP that pairs with an HSA.