What Is a High-Deductible Health Plan (HDHP)?

Understanding the meaning of an HDHP lets you pitch the right plans to your clients. As a plan regulated by the Affordable Care Act (ACA), an HDHP has limits that can influence an employer's decision. The plan offers benefits, such as lower monthly premiums and full coverage for preventive services. It also works with tax-advantaged accounts, like a health savings account (HSA) and a health reimbursement arrangement (HRA).

However, there are some major drawbacks to consider. If you're an insurance broker looking for the right healthcare solutions, this article details what an HDHP health plan is, how it works, and how it can benefit employers and employees. You'll also learn about the different plan providers at the end.

HDHP Definition

A high-deductible health plan (HDHP) is a plan with higher deductibles than a traditional health plan in exchange for a lower monthly premium. Deductibles are the amount employees must cover before the insurance coverage kicks in. The IRS sets the coverage limit annually to classify which plan is considered an HDHP. In 2025, the annual deductible must be at least:

• $1,650 for self-only coverage
• $3,300 for family coverage

Additionally, the annual out-of-pocket expenses cannot exceed:

• $8,300 for self-only coverage
• $16,600 for family coverage

Out-of-pocket expenses include deductibles, copayments, coinsurance, and other costs except for premiums. Copayments are the fixed fee for medical services, while coinsurance is the percentage employees must pay after meeting the deductible.

How an HDHP Works

Insurance providers set the coverage limits for an HDHP medical plan, provided they meet the IRS requirements. Before an employee meets these limits, they will incur out-of-pocket expenses. Suppose a self-only coverage plan comes with:

• An annual deductible of $2,500.
• An annual out-of-pocket maximum of $8,000.
• 20% coinsurance fee.

The employee must pay 100% of their bills until they reach $2,500. After that, they must pay 20% of the following bills, while their plan covers 80%. If the employee spends $8,000 in total, then the plan pays for all future expenses at 100%.

An HDHP fully covers preventive care without requiring coinsurance or copayments before meeting the deductible. These services exclude treatments but can include routine vaccinations, prenatal care, blood pressure tests, and other screenings. Each provider also sets its own coverage for other services, such as doctor visits, hospital stays, emergency care, and prescriptions. Opting for in- or out-of-network providers also affects the cost.

In-network providers offer more savings because they have special, agreed-upon rates with insurers. While some plans still offer out-of-network coverage, these providers may charge higher rates. Additionally, out-of-network deductibles are separate from in-network deductibles. Employees may meet their deductible more easily if they focus on in-network providers.

Pros of an HDHP

Given what an HDHP is, here are its benefits:

• Low monthly payments: Monthly premiums are more affordable, which benefits healthier employees who don't often need as many healthcare services.
• Full coverage for preventive services: HDHP provides full coverage for preventive care, since the ACA eliminated the cost-sharing requirements for such services.
• Lower expenses for in-network services: Insurers have contracted rates with specific providers, offering potential savings.
• HSA- and HRA-compatible accounts: HSA and HRA accounts are often paired with an HDHP. Both accounts help employees cover out-of-pocket expenses, either through a dedicated savings account or employer reimbursements.

Cons of an HDHP

Apart from the benefits, consider these drawbacks when offering an HDHP:

• Higher out-of-pocket costs: The higher deductibles lead to higher out-of-pocket expenses. Employees may find it harder to meet the minimum amount, unless they often seek healthcare services. The expense can also discourage them from seeking treatment.
• More expensive medical emergencies: Employees who have yet to meet the annual deductible must shoulder 100% of the bill for medical emergencies.
• Unsuited for those with existing conditions: Full coverage from the beginning is only available for preventive services. Although regular treatment makes it easier to meet the annual deductible, the cost can be higher than if employees went with a low-deductible health plan (LDHP).

Who Should Enroll in an HDHP

HDHP health plans are ideal for healthier employees who don't need regular treatments and mostly benefit from preventive care services. They're also suited for those who can afford higher upfront costs in emergencies. Older employees or those with existing conditions may find an HDHP costly. An employee benefits survey can identify what employees need.

How to Offer an HDHP

An HDHP counts as qualifying health coverage, and open enrollment runs from November 1 to January 15. State marketplaces may have their own schedule, which may be extended. Employers can purchase an HDHP through a public or private marketplace.

In the marketplace, if employers enroll, renew, or update their plans by December 15, plan coverages start January 1 the following year. If they enroll by January 15, coverage begins February 1.

A qualifying life event can also trigger a special enrollment period. The deadline depends on the specific life event. For instance, if an employee recently got married in the past 60 days, they can pick a plan by the last day of the month and have their coverage start the following month.

Supplementary Accounts for an HDHP

An HDHP is an HSA-eligible plan, so an HDHP and an HSA are often offered together. An HRA can be a suitable alternative or add-on, depending on the coverage. Here's how these benefits work together.

How an HSA Works With an HDHP

A health savings account (HSA) is a personal savings account employees can use to cover qualified healthcare expenses, like out-of-pocket expenses from an HDHP. Both employers and employees contribute to this account, with the IRS setting the contribution limits each year. The contributions roll over annually and don't expire. For 2025, the limits are:

• $4,300 for self-only coverage under an HDHP
• $8,550 for family coverage under an HDHP

An HSA also offers a triple-tax advantage with tax-deductible contributions, tax-free withdrawals, and tax-deferred growth. However, if employees withdraw funds for use cases other than qualified medical expenses, they'll be charged income tax and a 20% penalty tax on the amount. People older than 65 won't be penalized.

Qualified medical expenses usually include:

• Doctor visits
• Hospital stays
• Prescription medications
• Dental treatments
• Vision care
• Mental health services

Employees can use the HSA funds for their dependents, even if the HDHP does not cover the dependents. Employees own their HSA. To be HSA-eligible, employees must not be covered by another health insurance and must be enrolled in an HDHP.

How an HRA Works With an HDHP

A health reimbursement arrangement (HRA) is an employer-funded reimbursement account that also covers eligible healthcare expenses. While the IRS determines the qualified expenses for an HSA, the employer determines the reimbursable expenses for an HRA. This option provides more flexibility for employers, letting them offer the most suitable benefits without breaking their budget.

Two HRA types that typically work with an HDHP include:

• Integrated HRA: Like an HSA, this HRA covers out-of-pocket expenses, like deductibles and copayments. There's no limit to how much employers can contribute to this account.
• Excepted benefit HRA: Employers who want to offer an HSA can offer an excepted benefit HRA with it to remain qualified. This HRA type typically covers limited benefits, like dental and vision care services. In 2025, the maximum funding for an excepted benefit HRA should not exceed $2,150.

Employers must allocate the funds to each employee's HRA account. These funds are not part of the employee's taxable income. While some employers allow a carryover, funds typically don't roll over to the following year. Unlike an HSA, employers own the HSA.

Like an HSA, an HRA is a tax-advantaged account. Employers can enjoy tax-deductible contributions, while employees can get tax-free reimbursements. Note that HRA funds do not earn interest, and that the account is not portable if employees switch health plans. Employees also cannot contribute to an HRA.

HDHP Health Plan Providers

Different health insurance providers can offer an HDHP plan. As long as the plan fits the IRS's requirements, it can be considered an HDHP. Here are some provider types to choose from:

1. Preferred Provider Organization

A preferred provider organization (PPO) allows employees to see their preferred physician. Employees can access in-network and out-of-network providers, but out-of-network providers may be pricier. For out-of-network services, employees must file a claim to be reimbursed. Employees won't need a referral to see a specialist.

A PPO plan can be a good option for employees who need flexibility. Plans typically come with premiums, deductibles, copayments, coinsurance, and other costs that may come from out-of-network services.

2. Health Maintenance Organization

A health maintenance organization (HMO) lets employees access healthcare services through their network. Employees won't need to fill out claim forms for such services. However, unlike with a PPO, employees need a referral from their primary care doctor before seeing a specialist.

An HMO plan's cost includes premiums, deductibles, copayments, and coinsurance. Out-of-network providers are often not covered at all, so employees must shoulder the bill for such services. However, because an HMO usually has a limited network, it often has lower premiums than a PPO.

3. Exclusive Provider Organization

An exclusive provider organization (EPO) doesn't cover out-of-network providers. However, its network is typically larger than HMO networks. Employees must shoulder the bill for out-of-network services, except during emergencies. They don't need a referral from their primary physician to see a specialist.

Members are always covered for emergency care, regardless of the provider's network. Like with a PPO, employers must account for the premiums, deductibles, copayments, coinsurance, and out-of-network costs. They can also get lower premiums compared to a PPO.

4. Point-of-Service Plan

A point-of-service (POS) plan offers similarities to the previous options. Employees can see in-network and out-of-network providers, with an added cost for those outside the network. The plan also covers all types of emergency care, regardless of the network provider. Employees need referrals from their primary care doctors to see a specialist.

The plan also comes with premiums, deductibles, copayments, and coinsurance. While monthly premiums can be pricier than those of an HMO, they are often more affordable than a PPO.

How to Select the Right Type of Health Plan

When selecting the right HDHP insurance, employers must consider:

• Employees' and dependents' needs: Younger employees may have different needs than older ones. The same goes for employees with or without children. When offering a plan type, understand what works best for their circumstances to ensure the optimum use of the available budget.
• Coverage options: What HDHP providers are offering should be at the heart of the plan selection. Consider which coverages are suitable for employees' health conditions. Without adequate coverage, they may seek out supplemental plans that could have been covered under a more comprehensive plan.
• Employee and employer budget: The cost of the plan affects how well the employees can use their coverage. For instance, pricier out-of-pocket costs can discourage them from seeking the treatment they need right away. A flexible plan can also help employers create a package that suits their budget.
• Type of network: Different providers offer an HDHP. When selecting a provider, consider its network size and covered services. Employees may also have a physician they prefer, which makes flexible plans essential.
• Supplementary accounts: Supplementary accounts that cover expenses not covered by an HDHP alleviate healthcare costs. Consider offering an HSA or an HRA that can help with out-of-pocket expenses.

Improve Your HDHP Benefits With The Difference Card

An HDHP is a health insurance plan that offers low monthly premiums in exchange for higher deductibles. It can be suitable for younger and healthier employees who don't require regular healthcare services. Adding an HSA or an HRA can supercharge your offer. That's where The Difference Card can help.

Since 2001, The Difference Card has been helping companies create the most cost-effective healthcare plan. Through our custom solutions, our clients see an average savings of 18%, amounting to about $1.8 billion in savings and counting. If you're a broker looking to stand out, our innovative health insurance products can help you.

From our cost-containment solutions, like the Difference Card Medical Expense Reimbursement Plan (MERP), to our benefit administration services, including health savings accounts and health reimbursement arrangements, we'll help you provide the benefits catered to your clients' needs. Request a proposal today to learn more.