Understanding High-Deductible Health Plans

August 7, 2025

Health care expenses—like premiums, copayments, and deductibles—can quickly put a strain on your budget. If you're looking for ways to lower your monthly insurance costs without compromising essential coverage, a high-deductible health plan (HDHP) may be worth exploring. While these plans can offer savings on premiums, they also come with certain trade-offs. Here’s what you need to know about how HDHPs function and how you can potentially maximize their benefits—especially when paired with a Health Savings Account (HSA).

What Is a High-Deductible Health Plan?

A high-deductible health plan is a type of health insurance that features lower monthly premiums in exchange for a higher annual deductible—the amount you must pay out of pocket before your insurance starts to share in the cost of your care. This structure might appeal to individuals who are generally healthy and don’t anticipate needing frequent medical attention.

For 2025, the IRS defines an HDHP as having a minimum deductible of $1,650 for individuals or $3,300 for families. In 2026, those figures will increase slightly to $1,700 and $3,400, respectively. Some plans may have even higher deductibles, depending on the insurer.

How HDHPs Work

With an HDHP, your upfront costs for medical services are generally higher until you meet your deductible. Until that point, you’ll be responsible for the full cost of most covered services, although many HDHPs still cover preventive care—like annual physicals or routine vaccinations—without requiring you to meet your deductible first.

Once you hit your deductible, your insurance begins to cover a portion of your expenses through a cost-sharing arrangement. This usually involves coinsurance, where you pay a percentage of the costs, and your insurer pays the rest.

Importantly, HDHPs also have an annual out-of-pocket maximum. For 2025, that cap is $8,300 for individual coverage and $16,600 for family coverage. These limits increase to $8,500 and $17,000 in 2026.

Benefits of Choosing an HDHP

HDHPs come with several potential advantages:

●     Lower Premiums: You may pay less each month for your insurance, freeing up cash flow for savings, investments, or daily expenses.

●     HSA Eligibility: Many HDHPs qualify you to open a Health Savings Account (HSA), which offers powerful tax advantages. Contributions are either tax-deductible or made pre-tax through payroll. The money grows tax-free, and withdrawals for qualified medical expenses are also tax-free.

●     Encouragement to Compare Costs: Because your out-of-pocket exposure is higher, you may be more likely to seek cost-effective care, which can help you become a more informed health care consumer.

Downsides to Consider

Despite the potential for savings, HDHPs aren’t for everyone:

●     High Out-of-Pocket Risk: A sudden illness or emergency could leave you facing a large bill before your insurance kicks in. This can be a major issue if you haven’t built up enough in savings to cover your deductible.

●     Delayed Care: The fear of high costs might cause some individuals to delay necessary treatments or screenings, which could lead to worse health outcomes—and higher costs—later.

●     Not Ideal for Chronic Conditions: If you have a medical condition that requires regular care or medication, an HDHP may not be the most economical option. The ongoing expenses can quickly exceed what you’d save in lower premiums.

HDHPs and HSAs: A Smart Combo

If your HDHP is HSA-qualified, you can contribute to an HSA and use the funds to pay for eligible medical expenses like deductibles, prescriptions, and even certain over-the-counter items. In 2025, the annual HSA contribution limit is $4,300 for individuals and $8,550 for families. These limits increase to $4,400 and $8,750 in 2026.

HSAs are individually owned, meaning the account stays with you even if you change jobs. Funds roll over year to year, and once you turn 65, you can withdraw HSA funds for non-medical expenses without penalty—though income taxes will apply.

Bottom Line

Deciding whether an HDHP is right for you involves considering your health history, financial situation, and risk tolerance. If you’re healthy and rarely need medical care, the lower premiums and HSA tax perks may make an HDHP a smart financial move. But if you anticipate significant medical costs, you might benefit more from a plan with lower deductibles, even if that means paying higher monthly premiums.

In short, HDHPs can be a cost-effective solution—if you're prepared for the potential risks and know how to take full advantage of the tools available to offset them.

Sources:

https://www.fidelity.com/learning-center/smart-money/what-is-a-high-deductible-health-plan

Disclosure:

This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.

This material is provided as a courtesy and for educational purposes only.

These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.