If you’re anything like us, terminology from health insurance makes your eyes glaze over. We break it down for you so you know everything you need to know about high deductible insurance plans.
Firstly, what is a high deductible insurance plan?
Actually, let's back up even further - what is a deductible?
Healthcare.gov defines a deductible as “The amount you pay for covered health care services before your insurance plan starts to pay. With a $2,000 deductible, for example, you pay the first $2,000 of covered services yourself. After you pay your deductible, you usually pay only a copayment or coinsurance for covered services. Your insurance company pays the rest.”
Okay, so that’s relatively straightforward. Before your deductible, you pay for your services. After you spend the amount that is specified by the deductible, your insurance pays.
Now, back to our main topic - what is a high deductible insurance plan?
Healthcare.gov defines it as “A plan with a higher deductible than a traditional insurance plan. The monthly premium is usually lower, but you pay more health care costs yourself before the insurance company starts to pay its share (your deductible). “
So a high deductible insurance plan specifies that the deductible is higher than average. Over the year, you have to spend more money before the deductible will kick in and your insurance will have to pay for your costs. In return for this arrangement, your monthly flat rate for your health insurance is lower.
One thing to keep in mind is that deductibles are going up every year. If you had a $3,000 "high" deductible five years ago, you might be surprised to find that $3,000 could be considered a medium level deductible now. Unfortunately, health insurance companies control all of this and leave people without many options to choose from.
So who benefits from a high deductible insurance plan?
Essentially, taking a high deductible insurance plan is taking a bet that you are going to be healthy and not require much medical treatment. If you are a young, healthy person in your 20s, you don’t go to the doctor for anything other than a yearly check up, and you are not on many expensive prescriptions, taking a high deductible plan may be a good idea; it will be cheaper for you over the year because you don't need very much medical care.
Let’s make an example so we can see what a high deductible insurance plan looks like in action.
Let’s say that Sally is our 25 year old healthy adult.
She is interested in a high deductible insurance plan where the monthly premium is $300, which is quite low. And let’s say her deductible is at $6,000.
(For comparison, a low deductible plan might have a much higher monthly premium of $500 and a lower deductible of $1000).
So to figure out what Sally might spend, we can do something like this:
($300 monthly premium x 12 months) + (all her care, up to $6000) = total expenditure per year.
So if Sally only goes to the doctor's once a year for her annual checkup, and she doesn't have any prescription drugs, her figure might look like this:
($300 monthly premium x 12 months) + ($300 for 1 doctors visit) = ?
$3,600 + 300 = $3900.
Now that might seem like a lot of money, but let’s say we picked the lower deductible plan we mentioned earlier. She would spend $6,000 a year just on the premium and then another $300 on her one doctor's visit for a yearly total of $6,300.
So in conclusion, if Sally picks the high deductible plan and only goes to the doctor once, she might spend about $3900 a year on healthcare costs. If she picks the low dedutible plan, she might spend $6,300.
So what all does this mean?
Who is a high deductible insurance plan good for, and what are the risks associated with it?
Basically, if you are very sure that your healthcare costs over the year are going to be low - you don’t go to the doctors for more than an annual checkup, you aren’t on a lot of expensive prescription medications, you’re not planning to become pregnant, you don’t have any serious medical conditions - then a high deductible insurance plan can save you a lot of money. Sally is a perfect example.
The risk, of course, is that you’re betting on your health.
If anything serious happens to you, like you’re injured in a car accident, you become pregnant, you are diagnosed with an illness, you develop any sort of medical problem, your yearly cost is going to be very high.
With the high deductible model we just came up with, you could potentially spend $10,000 (or more in copays) in just one year if something serious happened and you needed a lot of care. That’s a lot of money. If you had taken the low deductible model, you would cap out around $7000 instead.
So what’s our final piece of advice?
Be cautious. Read the plans you are offered carefully and do the math for yourself when you are deciding what plan to pick. Consider the following questions:
How often do you go to the doctor?
How much do you spend on prescriptions?
How regularly do you get lab tests done?
Are you at risk for any major medical conditions?
Try to determine how much money you spent on healthcare in the previous year and do out some equations like we just did above to see how much you would likely spend.
The low monthly premium on the high deductible plans look very attractive and could potentially save you a lot of money, but you’re taking a bet that your health is going to be great.
If you do decide to take on a high deductible plan, make sure you set aside money in a Health Savings Account (HSA) which you can use towards healthcare expenses before you reach your premium and on things like copayments after you do. This money won’t be taxed, can roll over year to year, and may even be able to earn interest.
Live in the New England area? You should consider going to Derry Imaging in Derry, New Hampshire for services like x-rays, CAT scans, and mammograms.
They offer services at usually about 1/3 of the price that a hospital would charge and all the charges would go straight towards your deductible. Plus, you can check out the exact price of the particular service you want online!
So what has your experience been with medical insurance? Are you enrolled in a high dedutible plan? We'd love to hear from you in the comments below!