Main menu


What Is a High Deductible Health Plan?

The Rules for These Plans Are Specifically Defined by the IRS

The term "high deductible health plan" probably sounds pretty self-explanatory. But it's actually an official term that the IRS defines—it doesn't just mean any health plan with a high deductible. High deductible health plans—often referred to as HDHPs—have to follow three rules:

The deductible has to be at least a certain amount, established each year by the IRS. For 2021, the minimum deductible is $1,400 for a single person, and $2,800 for a family , both of which are unchanged from 2020. (Family HDHP coverage just means that the plan covers at least one other family member in addition to the primary insured.)

The out-of-pocket maximum can't exceed a certain amount, established each year by the IRS. For 2021, the maximum out-of-pocket on an HDHP is $7,000 for a single individual and $14,000 for a family. These amounts are higher than the respective $6,900 and $13,800 limits that applied in 2020, but quite a bit lower than the general maximum out-of-pocket limits that apply to plans that are not HDHPs.

The plan cannot pay for any non-preventive services before the minimum deductible is met. This means non-preventive office visits and prescriptions must be paid in full by the patient (but at the health plan's negotiated rate, which is generally lower than the amount the medical provider bills).

 So a plan with pre-deductible copays for non-preventive services is not an HDHP, even if it meets the deductible and maximum out-of-pocket requirements (that's because copays involve the patient paying a set amount—$25 or $50, for example—and then the insurer pays the rest of the bill; this isn't allowed for non-preventive care on an HDHP until the member has met the minimum deductible). But the IRS has expanded the list of services that can be considered preventive care under an HDHP, and is also allowing plans to provide pre-deductible benefits for COVID testing and treatment while still keeping their HDHP status.

A high deductible health plan is not the same thing as a catastrophic health plan. "Catastrophic" is a term that was used in the past to describe any health plan with high out-of-pocket costs, but the ACA created a specific definition for it. Catastrophic health plans are only available to people under the age of 30 and to people who have hardship exemptions from the ACA's individual mandate.

And catastrophic plans can never be HDHPs because they cover three non-preventive office visits pre-deductible and have out-of-pocket exposure that's higher than the limits imposed for HDHPs.

You Need an HDHP in Order to Contribute to an HSA

If you want to be able to contribute to a health savings account (HSA), you need to have coverage under an HDHP. And again, that doesn't just mean any plan with a high deductible. This can be a point of confusion, as people sometimes assume that they can contribute to an HSA as long as their health plan has a high deductible—but it needs to be an actual HDHP that follows the IRS rules for that type of plan.

Along with having HDHP coverage, you also can't have any other additional health plan—with limited exceptions for supplemental coverage—and you can't be claimed as a dependent on someone else's tax return.

If you meet these rules, you're considered HSA-eligible, which means you can make contributions to an HSA (or someone else, including an employer, can make contributions to your HSA on your behalf).

There's a special rule that allows a person to make the maximum annual contribution to an HSA if they enroll in an HDHP mid-year (even if it's as late as December 1), but then they must remain covered under an HDHP for the entire following year. Otherwise, HSA contributions cannot be made for any month that you're not HSA-eligible. So for example, if you turn 65 and enroll in Medicare, you have to stop contributing to your HSA, even if you're continuing to work and you're still enrolled in your employer's HDHP.

Deductibles on Non-HDHPs Have Rapidly Increased

As deductibles on all health plans have increased over the years, the minimum deductibles for HDHPs aren't really that "high" anymore, relative to the deductibles on non-HDHPs.

HSAs and the rules for HDHPs were created under the Medicare Prescription Drug Improvement and Modernization Act in 2003, and first became available for consumers in 2004. At that point, the minimum HDHP deductible was $1,000 for a single individual and $2,000 for family coverage.