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high-deductible health plan (HDHP)

What is a high-deductible health plan (HDHP)?

What is a high-deductible health plan (HDHP)?

In lay terms, a high-deductible health plan could simply be considered a policy with a high deductible. But the term “high-deductible health plan,” or HDHP, is specific to plans that not only have high deductibles, but also conform to other established federal guidelines set by the IRS.

Can I combine a high-deductible health plan with an HSA?

Yes. HDHPs are the only plans that allow an enrollee to contribute to a health savings account (HSA). High-deductible insurance is considered a type of consumer-driven health plan, so you may hear the term CDHP used in conjunction with these plans. The idea is to give patients control over how to spend and invest their money.

HDHPs cover certain preventive care before the deductible – the ACA requires this of all plans – but under an HDHP, no other services can be paid for by the health plan until the insured has met the deductible. That means HDHPs cannot have copays for office visits or prescriptions prior to the deductible being met (as opposed to a plan that’s got a high deductible but also offers copays for office visits from the get-go; people might generally consider the latter to be a high deductible plan, but it’s not an HDHP).

In 2020, to address the COVID pandemic, the IRS issued guidelines that allow HDHPs to pay for COVID testing and treatment before the member has met the deductible. Federal rules required virtually all health plans, including HDHPs, to cover COVID testing with no cost-sharing until the end of the COVID public health emergency (which ended on May 11, 2023). But it’s optional for insurers to cover treatment with no cost-sharing, so this varies from one insurer to another (many insurers waived COVID treatment costs for several months in 2020, but virtually all insurers stopped doing this once COVID vaccines became widely available in early 2021).

Federal COVID-related telehealth flexibilities also gave HDHPs the option to cover telehealth services pre-deductible, and that continues through the end of 2024. HDHPs did not have to provide this benefit, but if they opted to do so, they can maintain that flexibility through the end of 2024.

The IRS also issued new guidelines in mid-2019, expanding the list of preventive services that can be covered pre-deductible on an HDHP, with enrollees retaining their HSA eligibility.

The new rules allow certain treatments for certain chronic conditions to be classified as preventive care for HDHP purposes (as noted below, the Inflation Reduction Act eliminates the requirement that a person be diagnosed with diabetes in order to have pre-deductible coverage for insulin under an HDHP). The medical conditions and treatments include:

  • Congestive heart failure or coronary artery disease: ACE inhibitors and/or beta blockers
  • Heart disease: Statins and LDL cholesterol testing
  • Hypertension: Blood pressure monitor
  • Diabetes: ACE inhibitors, insulin or other glucose-lowering agents, retinopathy screening, glucometer, hemoglobin A1c testing, and statins (Note that as of 2023, Section 11408 of the Inflation Reduction Act allows HDHPs to cover insulin pre-deductible regardless of whether the person has been diagnosed with diabetes)
  • Asthma: Inhalers and peak flow meters
  • Osteoporosis or osteopenia: Anti-resorptive therapy
  • Liver disease or bleeding disorders: International Normalized Ratio (INR) testing
  • Depression: Selective Serotonin Reuptake Inhibitors (SSRIs)

For all of these conditions and treatments, it’s important to understand that the rules do not require HDHPs to pay for these treatments pre-deductible. Instead, they are allowed to do so without the plan losing its HDHP status.

The IRS does not consider male contraception to be preventive care, but some states have begun mandating male contraceptive coverage on all plans. The IRS is considering new rules on this, but through the end of 2019, the IRS still considered a plan to be HSA-qualified if it covered male contraception before the deductible. That gave states time to modify their requirements to allow an exemption for HSA-qualified plans, in order to ensure that the male contraceptive mandates wouldn’t cause people to lose the ability to contribute to an HSA.

So with an HDHP, you’ll have to pay out-of-pocket for everything other than certain recommended preventive care until you hit your deductible (as noted above, the list of allowable preventive care benefits that can be covered pre-deductible by HDHPs is more extensive than the regular list of preventive care benefits that are required to be covered with no cost-sharing by all plans). After that, the insurance will pay benefits based on the plan’s coinsurance level (many HDHPs have 100% coverage after the deductible).

Minimum deductibles and maximum out-of-pocket

HDHPs have specific guidelines in terms of allowable deductibles and out-of-pocket costs. These are adjusted annually by the IRS, although there have been some years when there were no changes.

For 2023 coverage, the minimum deductibles for HDHPs increased to $1,500 for an individual and $3,000 for a family. And the maximum allowable out-of-pocket caps increased to $7,500 for an individual and $15,000 for a family.

For 2024 coverage, minimum deductibles for HDHPs will increase to $1,600 and $3,200, respectively. And the out-of-pocket caps will increase to $8,050 and $16,100, respectively.

(Note that these amounts are quite a bit lower than the total out-of-pocket allowed on non-HDHPs under the ACA; the gap between the maximum allowable out-of-pocket limit for HDHPs versus other health plans has been steadily widening since the ACA was implemented. People are often surprised to learn that Bronze and Silver-level HDHPs often have lower out-of-pocket limits than Bronze and Silver-level plans that aren’t HDHPs.)

But not all plans that fall within these dollar limit guidelines are HDHPs, since HDHPs are also required to only cover non-preventive services before the enrollee has met the deductible. So a plan with a $5,000 deductible would fail to be an HDHP if it also offers $25 copays for office visits before the deductible is met (as opposed to having the enrollee pay the full cost of the office visit and count it toward the deductible).

What are the contribution limits for an HSA?

To help pay these out-of-pocket costs, it’s both wise and typical to pair your high-deductible plan with a health savings account (HSA).

For 2023, the contribution limits are $3,850 for an individual and $7,750 for a family (note that “family” status under an HDHP just means that at least one additional family member is covered along with the policyholder; it does not have to include the entire family). People who have HDHP coverage in 2023 have until April 15, 2024 to contribute to their HSA for 2023.

For 2024, the HSA contribution limits will increase to $4,150 for an individual and $8,300 for a family.

If you’re 55 or older, you can contribute an extra $1,000 a year. This amount is not indexed for inflation.

The money that you contribute to an HSA will reduce your ACA-specific modified adjusted gross income – or MAGI – (which determines your eligibility for premium subsidies in the exchange). In some cases, selecting an HDHP and contributing to an HSA could result in larger premium subsidies than you’d otherwise receive.

Although the American Rescue Plan and Inflation Reduction Act have temporarily eliminated the ACA’s subsidy cliff (through 2025), subsidies are still not available if the cost of the benchmark plan (second-lowest-cost silver plan) is less than 8.5% of your MAGI. So reducing your MAGI with HSA contributions could also result in subsidies when you might not otherwise be eligible for them.

How can HSA funds be used?

This money in your HSA is yours to withdraw, tax-free, at any time, to pay for medical expenses that aren’t covered by your high-deductible policy. You can reimburse yourself after the fact if you prefer – so if you incur a medical expense in 2023 but pay for it without withdrawing money from your HSA, you can opt to reimburse yourself for that spending several years down the road, as long as you keep your receipts.

If you take money out of your HSA for anything other than a qualified medical expense, you’ll pay taxes on the withdrawal, plus a penalty. But once you turn 65, the HSA functions in much the same way as a traditional IRA: you can pull money out for any purpose, paying only income taxes, but no penalty.

You also have the option to just keep the money in the HSA and use it to fund long-term care later in life. The money is never taxed if you’re withdrawing it to pay for qualified medical expenses, even if you’re no longer covered by an HDHP at the time that you make the withdrawals. But contributions to the HSA can only be made while you have in-force coverage under an HDHP.

You can also withdraw money from your HSA to pay Medicare premiums (for Part A, if you don’t get it for free, and for Parts B and D, but not for Medigap plans), or to pay long-term care premiums. There are limits, based on age, on how much you can pull out of your HSA to pay long-term care insurance premiums with pre-tax money (the following limits are for 2023; they’re indexed for inflation each year by the IRS). If your age is:

  • 40 or younger, you can withdraw $480 tax-free to pay long-term care insurance premiums
  • 41 to 50, you can withdraw $890
  • 51 to 60, you can withdraw $1,790
  • 61 to 70, you can withdraw $4,770
  • 71 or older, you can withdraw $5,960

How do HDHP premiums compare to other plans?

In terms of premiums, HDHPs are usually among the lower-cost plans available in a given area, but they’re typically not the least expensive plans. That’s because the rules that govern maximum out-of-pocket costs for HDHPs are different from the rules that govern maximum out-of-pocket costs for all ACA-compliant plans. In 2014, the two were equal: the maximum allowable out-of-pocket for HDHPs was $6,350 for an individual and $12,700 for a family, and those were the same limits that applied to all ACA-compliant plans. So in that year, HDHPs were among the least expensive plans available.

But as time went on, the limits that apply to all ACA-compliant plans climbed faster than the limits that apply to HDHPs. For 2023, HDHPs can have a maximum out-of-pocket of $7,500 for an individual and $15,000 for a family. But the 2023 upper limit for out-of-pocket costs on non-HDHPs is $9,100 for an individual, and $18,200 for a family. So there are non-HDHP plans available that have higher out-of-pocket exposure (and thus lower premiums) than HDHPs.

If being able to contribute to an HSA is a priority for you, you’ll want to focus on the HDHPs available in your area. But if the premium is your primary concern and you don’t plan to contribute to an HSA, you may find less-expensive plans that aren’t HDHPs, and that have higher out-of-pocket exposure than the available HDHPs.

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