HDHP is an abbreviation for “high-deductible health plan“. This is a medical insurance plan that covers the majority of medical claims after a deductible has been reached. Once the deductible has been reached the insurance kicks in at a more traditional level and the insured is responsible for what is called coinsurance (cost sharing). Typically coinsurance has the insured paying 10%, 20% or 30% of claims after their deductible leaving the majority to be paid by the insurance carrier. Coinsurance continues until an out-of-pocket maximum is reached (includes the deductible), and when this is hit the insurance carrier picks up 100% of all claims moving forward.

A standard HDHP works in three stages:

1.  All expenses (except Safe Harbor Benefits) go against the deductible, which is a dollar amount that is paid down throughout the year.

2.  If the deductible is reached, the insurance carrier pays for the majority each claim moving forward and the insured is responsible for coinsurance.  This is typically a percentage of claims, such as 30%.  In some regions claims may fall into a copay-based system after the deductible.

3.  If the coinsurance paid + the deductible = the out of pocket maximum of the plan (typically 2-3x the deductible), the insured has no out-of-pocket expenses beyond the out-of-pocket maximum.

The main advantage of HDHPs is that they are drastically more affordable than more traditional, copay-based insurance. If you’re a generally healthy person, this means more money in your pocket. Even if you have an unhealthy year, an HDHP may still be the best-fit product for you because it has an out of pocket maximum, which copay-based plans do not have. With HDHPs there is a worst-case scenario, whereas with copay-based insurance you can pay tens of thousands of dollars in copays because the copay-structure never ends.

When coupled with an HSA (employee-controlled) or HRA (employer-controlled) HDHPs give you greater flexibility in how you use your health care benefits. You can pay your deductible with funds from your HSA or HRA, and of course via standard means such as cash, credit etc.