Should You Choose a High or Low Deductible Health Insurance Plan?
When open enrollment rolls around each year, you want to make sure that you and your family have the coverage you need—without paying more than you need to.
But choosing health insurance can be confusing. There are so many coverage options and choices to make—and choosing between a high or a low deductible health plan is one of the most common. Selecting your healthcare policy is a big decision with lots of variables—but we’re here to make the process as simple as possible. Keep reading as we guide you through how high- and low-deductible plans work—and help you decide which one is best for your needs.
High-Deductible Health Plan Benefits
As the name suggests, a high-deductible health plan (HDHP) carries a higher deductible than other plans. If you choose a HDHP plan, you’ll need to pay more before your plan benefits kick in for anything beyond in-network preventive care services. In other words, you’ll be paying for the services you need until you meet your maximum out-of-pocket costs.
A high-deductible plan is any plan that has a deductible of $1,400 or more for individual coverage and $2,800 or more for family coverage. Although a high-deductible plan generally has higher out-of-pocket maximum limits, once you reach that limit each year—including copayments and coinsurance—your insurance pays 100% of the amount for the rest of the calendar year. An HDHP plan also gives you the benefit of lower monthly premiums. This is especially beneficial if you’re relatively healthy and don’t plan on meeting your deductible or the maximum out-of-pocket limit.
Finally, a high-deductible insurance plan also offers a health savings account (HSA), which can help you pay medical expenses not covered by your plan. We’ll discuss it in detail below.
What’s a Health Savings Account (HSA) ?
If you choose a high-deductible plan, you’re also eligible for a health savings account (HSA), which is a great tool to help you manage health care costs. An HSA is a tax-free savings account that pays for qualified medical expenses, including:
- Dental treatments
- Eye exams and eyeglasses
- Nursing homes and long-term care
- Hearing aids
Because HSA contributions are tax deductible—and they grow tax free—they help you keep more money in your pocket. You can direct funds from your paycheck into an HSA pre tax, or you can add the money post-tax and deduct taxes later. Your employer may also contribute to your HSA. The money in your HSA earns interest and can be invested in stocks or mutual funds, and spent on any qualifying medical expense. Best of all, the funds don’t expire the way they do with flexible spending accounts (FSAs). That means you can keep the money in your account until you need to use it, without worrying about losing it at the end of the calendar year. Once you turn 65, you can withdraw money from an HSA for any reason with no tax penalty. You’ll simply pay ordinary income tax on the withdrawal, which means it can be a source of backup income during retirement if you stay in good health. The fine print on an HSA, however, is that not every high-deductible plan offers them. If you’re interested in a tax-free savings account, contact your insurer to confirm whether or not it’s included in your plan.
Low-Deductible Health Plan Benefits
There are a few things to consider if you’re thinking about choosing low-deductible health coverage. The benefit of a low deductible health plan is that when you need to tap into your coverage, you’ll pay less money upfront before your insurance kicks in to cover your medical expenses.
The drawback is that you’ll have to pay a higher premium each month—unless you have an HMO plan, which typically offers both low premiums and low deductibles. It also means that if you don’t end up needing more extensive medical care, you’ll have paid a higher monthly premium for nothing. And by sacrificing a lower monthly premium to get a lower deductible, you’ll also be giving up a health savings account, since these are only paired with high deductible plans.
The good news is that a low-deductible policy can make it easier to manage your medical expenses if you need surgery or develop a serious illness. Since the deductible is lower, you won’t have to worry about significant out-of-pocket expenses that you can’t afford.
High Deductible vs Low Deductible: Which One is Right for Me?
The simplest way to decide whether a high or low deductible plan makes more sense is to consider your health situation, as well as how much you can afford. Here’s a recap of the two to help you decide which one is best for your medical needs:
- Who should consider a high-deductible health plan: Even though high-deductible health plans involve greater out-of-pocket costs, they can still offer significant savings to certain members. If you’re young and healthy, you may only need standard preventive care, in which case a high-deductible plan could be the best option. A high-deductible health plan might be right for you if:
- You rarely get sick or injured.
- In the event of an unexpected medical expense, you can afford to pay your deductible upfront or within 30 days of receiving a bill for that amount.
- You are interested in using an HSA as a way to save or invest money and can make contributions each month.
- Who should consider low-deductible health plans: A low-deductible plan can make health expenses easier to predict. Even though they carry a higher monthly premium, they are still the most financially wise choice for many members in the long run. A low- or no-deductible plan might be right for you if:
- You are pregnant, planning to become pregnant, or have small children
- You have a chronic condition or need to see a doctor frequently
- You participate in high-risk sports or activities
- Your prescription medications are costly
- You’re considering a reparative surgery, such as a hip or knee replacement
- You’d prefer a plan with more reliable costs overall. Consider how much you can afford to pay for the monthly premium. Then, weigh that against the value of having your healthcare covered when you need it—without any unexpected high bills.
How to Save on Your Monthly Health Insurance Premium
Health insurance policies can be confusing, but we are here to help make it as easy as possible—which includes giving you some of the best coverage rates in the industry. Our online health insurance quotes are fast and—best of all—free! Get yours today and say hello to affordable healthcare coverage that’s comprehensive and affordable.
When open enrollment rolls around each year, you want to make sure that you and your family have the coverage you need—without paying more than you need to.
But choosing health insurance can be confusing. There are so many coverage options and choices to make—and choosing between a high or a low deductible health plan is one of the most common. Selecting your healthcare policy is a big decision with lots of variables—but we’re here to make the process as simple as possible. Keep reading as we guide you through how high- and low-deductible plans work—and help you decide which one is best for your needs.
