Look closely at the options for the deductible and premiums on health insurance and you’ll find a basic relationship. The deductible and premiums have a teeter-totter effect: If one goes up, the other goes down.
The primary appeal of high deductible plans is simple – the higher the deductible, the more money you can save money on monthly premium cost. This can be a great option for the young and healthy population.
Health insurance protects you from having to pay the entire cost of big medical bills on your own. In exchange for that protection, you pay a premium (a monthly fee to maintain coverage), and a deductible (a set amount of money you might have to pay during the year for medical care before your health plan starts paying your medical bills).
For example, a 40-year old female in Dallas, Texas can purchase an individual Platinum health insurance plan with a $1,000 deductible and $25 doctor copays for around $440 per month. That’s $5,280 for the cost of the plan over the course of 12-months. This same woman could also purchase a Bronze plan with a $6,000 deductible for about $186 per month. That’s only $2,232 a year. If she needs no medical care during the year, she could save $3,048 with the high deductible plan. However, if she needs care due to an accident or illness, she would have to pay the first $6,000 of care out of your own pocket.
Depending on the health insurance plan you select, you could also require you to pay a set amount for prescription drugs, plus coinsurance, which is a percentage of medical expenses, after you meet the annual deductible.
In general, a high deductible can save money for those who stay healthy. However, you won’t know if a high deductible was the right answer until you tally your health-care costs for the year.
Is a High Deductible Right for You?
Good candidates for a high deductible health insurance plan:
- Want financial protection from major illness or injury
- Want lower monthly premium
- Willing to pay for routine medical expenses
- Has the income to pay for routine medical expenses
- An early retiree who needs a bridge to Medicare
The Affordable Care Act, also known as Obamacare, officially ingrained high deductible plans into the fabric of American healthcare by making them an option in qualified health plans. The law set a new standard for high deductible plans by requiring certain benefits:
- Free preventive services. Qualified health plans must cover a list of preventive services and not charge you a copay or coinsurance, even if you haven’t met your annual deductible. The services include immunizations, colorectal cancer screening, mammograms and yearly physicals.
- Out-of-pocket limits. Setting a maximum of $6,8350 for single coverage or $12,700 for family coverage on your annual spending for deductibles, copayments and coinsurance protects you from bankruptcy following a serious medical problem.
- Health savings account (HSA). People with a high-deductible health plan, defined by the Internal Revenue Service as having an annual deductible of at least $1,250 for individual coverage or $2,500 for family coverage, are eligible for a health savings account. These bank accounts allow you to save pre-tax wages for qualified out-of-pocket medical costs and to withdraw up to a set dollar amount each year. Any unused balance can be rolled over for use in subsequent years.
When shopping for health insurance, consider a number of factors:
- Your tolerance for risk. If you’ll worry about the possibility of a big bill spoiling your efforts to save money, you might have more peace of mind with a low deductible.
- With qualified health plans, the range of deductibles varies, depending on the level – bronze, silver, gold or platinum.
- Monthly premiums and copays do not count toward the deductible.
- After meeting the deductible, you might still have to pay copays and coinsurance.
- High deductible plans can have the same benefits and doctor choices as other health plans.
- A common guide recommends a deductible no more than 5 percent of your annual gross income.
- Figure out your total cost, which includes the deductible, premiums for the year, copays and coinsurance.