High vs Low Deductible Health Insurance: How to Choose
Health insurance is an extremely personal form of protection for us as individuals and our families in general. This is why we must fully comprehend the coverage along with the deductible plans that come with it. In this article, we will cover what is offered on the marketplace and whether you should choose a high or low deductible health insurance plan.
Before we jump into the main differences between high vs low deductible, first we will go over the terms and basics that will be used in this article.
- The amount paid for health insurance every month is called a premium. Besides that, our decision to opt for a High Deductible Health Plan (HDHP Plan) or a Low Deductible Health Plan (LDHP Plan) will affect our monthly payments.
- A deductible is the amount paid for a covered health care service before the insurance plan starts to pay. For example, with a $1,500 deductible, you pay the first $1,500 of the covered services.
- After the deductible is paid, we usually pay a copayment or coinsurance fee for covered services and the insurance pays for the rest. They can come as a fixed fee or a percentage cost.
- And finally, the Out-of-pocket maximum/limit is the most we need to pay for covered services in a plan year. After this amount is spent on deductibles, copayments, and coinsurance for in-network care and services, the health plan pays 100% of the costs of covered benefits.
Still confused? Read more on deductibles, copay and coinsurance!
High vs Low Deductible. What are the main differences?
A high deductible health plan has a lower monthly premium, so in a way, if we do not require medical care, we save money every month. At the same time, a high-deductible plan limits the amount an individual or an employee will have to spend on out-of-pocket expenses every year, so we are off the hook for those unlimited bills.
HDHP plans are often a good option for younger or healthier people because they are less likely to need medical care. These plans can also make sense for older people who are healthy, have savings, and are willing to take a chance on higher out-of-pocket expenses in case they need medical care.
The downside of the high-deductible plan is that the deductible can become a heavy burden. It’s difficult to pay over $1,500 or $2,000 all at once. Also, the deductible is not the only out-of-pocket cost. Plans can have copayments and coinsurance fees on top of that. In total, we could end up paying thousands, in case of an extensive treatment before the insurance kicks-in.
There is also a risk that employees could choose to skip treatment because they cannot or do not want to pay the deductible. If they do this, their health will suffer and, if their condition gets worse, they may need even more expensive care in the future.
A low deductible health insurance plan is far more predictable. Even though we are paying a higher monthly premium, there is often little to no concern about a large out-of-pocket expense in case we ever get sick or require medical care. This makes low deductible plans a better choice for people with known health issues or older people who are more likely to need medical care.
As we mentioned before, the only downside of an LDHP Plan is that the monthly premiums are higher. The premium must be paid no matter what, even if there isn’t a need to take advantage of health care services.
Which Plan to Choose
Is a lower deductible better? Before we go on and decide which out of a low vs high deductible is right for us, we need to better understand the full picture. The minimum premium plan should not be the sole reason behind choosing a high deductible health plan, because in case we end up needing medical care, there could be a surprise when it’s time to pay the deductible.
If your employer is offering health insurance benefits, you can expect the first question to be – Do you want a higher or lower deductible? and whether you want a Health Savings Account (HSA) to go along in case you chose the HDHP Plan. An HSA is an account that lets you set aside money on a pre-tax basis to pay for qualified medical expenses. The money can be later paid for deductibles, copayments, coinsurance, and other qualified expenses, including some dental, drug, and vision expenses so you can lower your overall health care costs and monthly premiums. Here we will talk about what are the pros and cons of each and how distinct groups of people can benefit from each plan?
Best for young and generally healthy people, individuals who rarely visit the doctor or buy prescription drugs, do not have dependents and can cover out-of-pocket costs in an unexpected medical situation.
Pros – Lower monthly premiums and tax-free spending account in the form of a Health Savings Account.
Cons – Higher deductible and higher out-of-pocket maximums and limits.
Attractive to people over 65 years old, people who are planning to get pregnant, people who expect or are needing more prescriptions or care because of a pre-existing or chronic condition, have multiple dependents on their plan, and people with a history of illness or an upcoming procedure or surgery.
Pros – Saving on out-of-pocket costs.
Cons – Higher upfront monthly premium.
In a way, the main takeaway here is – Deductible vs Premium. Whether we want to have the low deductible and try to save upfront on the frequent medical costs, or we want a lower monthly premium with the HDHP. Given the benefits and setbacks, there is a lot to consider in choosing a higher or lower deductible health insurance plan. Ultimately, the best health insurance plans will be based on your lifestyle and the current medical and financial situation.
Are high deductible health plans good?
For a young and healthy individual, a high-deductible plan makes sense because it comes with a lower monthly premium and can be paired with a Health Savings Account (HSA). The plan, however, comes with a high deductible that is the amount a person needs to pay before a health plan kicks in and begins to pay for the covered costs.
What is a zero deductible health plan?
Zero deductible health plans can cost almost twice as much per month as any other plan. The groups of people that can benefit from these plans are families with small children, people who suffer from chronic conditions or are in need of repeated hospitalizations. Also, this plan should be considered for children who are frequently sick or play sports.
What is a good deductible?
Choosing a health insurance plan with a high vs low deductible depends totally on specific individual needs. As an example, a health plan with a deductible of $1,400 or higher is considered a High-Deductible Plan. And for families, anything above $2,800 is also considered a High-Deductible Plan. So, in order to keep the monthly premiums low, choosing a high deductible may be a good option. But in case there are frequent visits to the hospital, choosing a high-deductible plan might not be the best option. Always choose the deductible that fits your specific needs.