High-Deductible Health Plan (HDHP)

Taxpayers must be covered by a high-deductible health plan (HDHP) to be able to take advantage of HSAs. An HDHP generally has lower premiums than traditional health care coverage.

An HDHP is health coverage with a:

• Higher annual deductible than typical health plans and
• Maximum limit on the sum of the annual deductible and out-of-pocket medical expenses that the taxpayer must pay for covered expenses. Out-of-pocket expenses include copayments and cost sharing but do not include premiums.

The IRS has ruled that an HDHP can cover certain types of preventive care without a deductible, or with a deductible that is less than the annual deductible applicable to all other services. Generally, preventive care services do not include any service, benefit, or medication to treat an existing illness, injury, or condition. In situations where the treatment is incidental or ancillary to a preventive care service or screening, the treatment may fall within the safe-harbor for preventive care. See IRS Notices 2004-23, 2004-50. 2013-57 and 2019-45, available on www.irs.gov, for details on these situations.

If an HDHP has a deductible for preventive care expenses, those expenses, up to the deductible, are qualified medical expenses for HSA purposes. If the HDHP has no deductible for these preventive services, the plan—not the HSA—covers the expenses. Taxpayers who are uncertain if their plan is an HDHP should be advised to contact their insurer.

There are limits for annual deductible and out-of-pocket expenses for HDHPs.

For more information, refer to Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans.