Regular health care is expensive and can be a major factor in monthly expenses, especially if you or someone in your household has a certain medical condition. This could require frequent medical appointments, prescriptions, and other medical services. Having good health insurance coverage is vital to anyone. But with all the talk about deductibles, it’s sometimes hard to know how to select the best plan for you. This article will help you understand health insurance deductibles and which one is best for you.
What Is a Deductible?
Deductibles work the same however you use them. Whether for car or health insurance, a deductible is the amount of money you’re required to pay out of pocket before the insurance company covers any of the costs needed for your services. Unlike car insurance, where the deductible is paid per accident, the deductible for health insurance is paid on an annual basis. However, there are some expenses that are exceptions to this rule.
There are different levels of deductibles, high and low, and they vary by the type of plan you have. As a general rule, the higher the monthly premium, the lower the deductible, and vice versa.
How Health Insurance Deductibles Work
If you have health insurance, you pay a monthly premium as with any other insurance. But the premium doesn’t get you off the hook from not having to make any other payments toward your health care. The premium is what you pay to retain the health coverage.
So, as you’re paying your premium, this is how a deductible works. Let’s say that your health insurance requires a $1,000 deductible. Let’s also say you need an MRI that costs $1,000, and as a result of the MRI, you also need surgery that will cost $3,000. If you have not paid anything toward your deductible for the year, you’ll need to pay the $1,000 (which will cover the cost of the MRI). Once that’s paid, insurance will kick in to cover the cost of the surgery.
You may also need to pay a copayment for some health care services as well as coinsurance. Copayments are flat fees doctors and specialists charge for certain visits. The coinsurance is the percentage of health care you pay once the deductible has been met.
Exceptions to the Rule
All health insurance plans are required by law to cover preventative care. That means your health insurance should automatically cover annual physical appointments, screenings, and immunizations immediately after coverage starts. However, each plan varies, so it’s important to know in advance the services that your health insurance will cover without charge to you.
Deductible Levels in Health Insurance
Deductibles vary based on the number of people (family or individual) your insurance will cover and the type of health insurance plan you choose. Insurance plans are either a High Deductible Health Plan (HDHP) or a Low Deductible Health Plan (LDHP).
This type of insurance coverage is for one individual. If you’re single, with no dependents, this would be an insurance plan for you. This deductible represents the amount of deductible for one individual to pay before the insurance coverage kicks in.
This type of insurance coverage is for the family (two or more individuals). If you’re a single person with dependents or a married couple with or without children, this would be an insurance plan for you. This deductible represents the amount of deductible the family members collectively must pay out-of-pocket before the insurance coverage kicks in.
HDHPs are plans that have higher deductibles. If you have this plan, you will pay more out-of-pocket before insurance kicks in. An insurance plan is considered an HDHP if it has a deductible of at least $1,400 for individual out-of-pocket costs or $2,800 for family out-of-pocket costs.
LDHPs are plans that have lower deductibles. If you have this type of plan, you will pay less out-of-pocket before insurance kicks in.
Benefits and Drawbacks of a High Deductible Plan
Benefits of an HDHP
Lower Premiums: When you’re required to pay a higher deductible, you’ll usually pay less monthly premiums than the LDHP. This is an advantage for a generally healthy individual(s) who doesn’t require frequent medical care.
Health Savings Account (HSA): HDHPs usually allow individuals to open a HSA. This is where they can contribute pre-tax money toward their medical expenses. HSAs are a tax advantage and are helpful toward saving for future healthcare costs.
Incentive to Live Healthier: People with higher deductible costs have every reason to avoid having to pay to treat medical conditions. Therefore, they’ll be more apt to be proactive when it comes to making the right choices to keep them healthy and avoid additional medical expenses.
Long-Term Savings: If someone with an HDPD remains healthy throughout the year and doesn’t incur much in terms of medical expenses, the lower premiums and potential contributions they’ve made through HSA could mean long-term savings in the end.
Drawbacks of an HDPD
More Out-of-Pocket Costs: If someone who requires frequent medical care has an HDPD, the out-of-pocket costs could become a financial burden.
Delayed Medical Care: Since the upfront out-of-pocket costs associated with medical care are essential and higher with an HDPD, it may cause an individual to delay needed medical treatment. This could, in turn, lead to more serious health issues.
Benefits and Drawbacks of a Low Deductible Plan
Benefits of an LDHP
Less Out-of-Pocket Costs: The less you have to worry about paying out-of-pocket is especially advantageous to someone living on a budget.
Better Able to Manage Frequent Doctor Visits: If you or a family member have a need for frequent medical visits due to medical conditions, you could better manage and budget your healthcare expenses.
Drawbacks of an LDHP
Higher Monthly Premium: When you’re required to pay a lower deductible, that usually means you’ll pay more monthly premiums than the HDHP.
Which Type of Plan May Be Right For You
Health insurance plans require yearly enrollments, and coverage could change yearly. So, it’s best to look at your short-term circumstances. There’s no perfect fit – the best plan depends on your unique situation. Your financial situation should be taken into consideration. But generally, if you or a family member don’t anticipate needing frequent medical attention in the upcoming year, then an HDPD may be the most advantageous plan financially. However, an LDHP may be best for you if frequent medical care is anticipated.
The Bottom Line
Make sure to carefully compare plans if you have options. Never settle on a plan solely because of the monthly premium amount. Consider all the factors that would be best for you and your family.