Should I Choose a High Deductible or Copay Health Insurance Plan?

Category: Health Insurance Originally Posted: December 11, 2014 by HealthCare.com Staff Last modified: September 12, 2016

When shopping for qualified health insurance coverage, you will notice that some plans have the word HSA or copay in their name. Plan types do not stop at the metal levels.

Plan designs may include traditional copay health insurance or an HSA-compatible high-deductible health insurance plan—some plans are even a combination of the two. As you navigate the metal tiers and dig into plan details, you will want to be aware of how these plans function so you can select the best coverage. Compare health insurance plan options here.

Traditional copay health insurance plan

A traditional copay health insurance plan is designed with set copay amounts for specific healthcare benefits. As with all health insurance coverage, you will pay your monthly premium for access to benefits. Then, when you need medical care, you will pay the set copay amount outlined in your plan benefits—some services may require coinsurance instead.

Here is an example of how traditional copay plans work:

  • You need to see your primary care physician. Your plan requires you pay a $25 copay at the doctor’s office. The plan picks up the bill.
  • However, if you visit the emergency room, your plan requires you pay 25 percent coinsurance. That means you will be billed for 25% of the covered expenses and your plan will pay up the remaining 75%.
  • If you go seek care out-of-network in either of these circumstances, in this example, your plan pay 50% coinsurance and you pay the other half of the covered out-of-network expenses. No matter what network design or plan type you choose, be sure to see how out-of-network care is covered.

It is also helpful to be aware that copay plans tend to come with an HMO or PPO network.

  • Health maintenance organizations, which are commonly referred to as HMOs, require insured members to choose a primary care physician who will coordinate their care. You must see this doctor first and get a referral to specialists or other providers. With HMOs, out-of-network care is typically not covered.
  • Preferred provider organizations, which are commonly referred to as PPOs, do not require a primary care physician coordinate care. As such, they tend to offer more flexibility. Services received out-of-network may be covered at a lower percentage or not at all.

While monthly premiums for traditional copay health insurance plans tend to be higher, these plans typically have a low deductible or none at all. This option can be beneficial for those who want a fairly accurate idea of what healthcare will cost them in the year to come.

While there are traditional copay health insurance plans available at all metal levels, they are more common among gold and platinum offerings, especially the no-deductible options.

High-deductible health insurance plan

High-deductible health insurance plans require you pay for all healthcare services out of pocket until the annual deductible has been met, at which point your plan’s benefits kick in and you will then become responsible for only your coinsurance amount. Again, as with all health insurance coverage, you must pay a monthly premium as well.

Here is an example of how HDHPs work:

  • You may have an individual health insurance plan with a $3,650 deductible.
  • You incur a $600 medical bill after visiting a specialist and undergoing some diagnostic tests. This bill must be paid 100 percent out of pocket. After this, you still have $3,050 more to pay before you reach your deductible, which means you will keep paying for healthcare up until that point.
  • Let’s say you are hospitalized later in the year and incur $5,000 worth of medical bills as a result. You will pay the remaining $3,050. In this example, your plan requires you pay 0 percent coinsurance after deductible for covered expenses. The plan picks up the remaining $1,950 and 100 percent of any future medical expenses for the year.

Of course, not all HDHPs will cover expenses 100 percent after deductible. Some will require you pay, for instance, 20 percent coinsurance for covered expenses after deductible. The coinsurance amount might even vary by the category of care (e.g., primary care physician office visit, specialist, emergency room). It is helpful to know that under the Affordable Care Act annual out-of-pocket expenses for covered healthcare services are capped at a certain amount.

Those who purchase an HSA-compatible HDHP may enroll in a health savings account (HSA) in which to set aside pre-tax dollars for qualified medical expenses. These funds roll over year after year and may even accrue interest.

For 2017 coverage, the IRS defines an HSA-compatible high-deductible health insurance plan as follows:1

Minimum annual deductible Maximum annual out-of-pocket
Individual $1,300 $6,550
Family $2,600 $13,100

Because high-deductible health insurance plans tend to have lower monthly premiums and higher out-of-pocket expenses, they tend to be best for relatively healthy individuals who anticipate lower healthcare expenses.

With a high-deductible health insurance plan you may still have a doctor visit copay. It all depends on the coverage you select. High-deductible health insurance plans may be found at all metal levels, but they tend to be most common among the bronze and silver tiers.

How to decide which plan type is best for you

It comes down to healthcare needs and out-of-pocket exposure. To really compare the plans you are considering, you will need to analyze and calculate costs beyond monthly premium.

  1. Add up your monthly premium for the year.
  2. Actor in your deductible.
  3. Consider your typical healthcare expenses in a given year and compare them as covered by a copay plan versus a high-deductible plan. Do not generalize; be sure to look at the plan-specific benefits details when making the comparison. If you have medical bills for the previous year, consult them for a more concrete estimation.
  4. Compare your monthly premium, deductible and out-of-pocket costs combined for each plan scenario.
  5. Then, determine which plan type seems most cost-effective and manageable for you and your family.

Taking a few minutes to do this can prevent you from paying too much for the wrong coverage or winding up with excessive out-of-pocket costs for which you are not prepared.

If you need additional assistance, contact a licensed health insurance agent or broker. For more information on health insurance options and the Affordable Care Act, visit HealthCare.com

1 Internal Revenue Service. Rev. Proc. 2014-30. Internal Revenue Bulletin. May 12, 2014. Retrieved from http://www.irs.gov/irb/2014-20_IRB/ar01.html