When Does it Make Sense to Have a High Deductible Insurance Plan?

UnderstandingHSAs

When navigating the complicated world of health insurance plans, you’ll undoubted be faced with several important decisions. One of these decisions is whether or not to choose a high deductible plan. While these plans are definitely not ideal for everyone, they can be a reasonable choice for certain people who know how to use them effectively.

Deductibles are the amount of money that you will have to pay out of pocket for medical costs before your insurance company covers the rest. This means that if you have a high deductible plan with a $1,300 deductible, that is the amount you must pay for medical expenses before your insurance takes over.

 

As of 2015, an individual plan is considered to have a high deductible if it is $1,300 or greater.  A family plan is considered to have a high deductible if it is $2600 or more.

On average, high deductible insurance plans carry lower monthly premiums.  A premium is the amount taken out of each paycheck to pay for your insurance coverage. Because of this, high deductible insurance plans are often a cost-effective option for people who normally incur limited medical expenses.

While this may sound like a poor investment, it can actually be ideal for people who rarely visit a doctor. When combined with the covered preventative services under the Affordable Care Act, many services such as immunizations, screenings, and an annual wellness visit can be received with no out-of-pocket costs.  As long as these allowed services are the only things you receive from your doctor, you do not have to pay anything toward your deductible.

If you do get sick and require medical care, you will be responsible for the cost of your doctor visit.  Some high deductible plans may cover occasional visits to your doctor with a copayment. This is a relatively small, fixed fee that you pay when you visit the doctor – the intent of the co-pay is to prevent ‘unnecessary’ visits or over-usage of medical services.

Though it is impossible to predict illnesses or injuries in advance, people who are in good health with historically low medical expenses could save considerably with a high deductible plan. However, these plans can be seen as something of a gamble, as medical emergencies or severe illnesses can occur without warning.

One way to safeguard against these unexpected medical costs is through a health savings account (HSA). HSA’s were designed specifically for people with high deductible health insurance plans. An HSA is somewhat analogous to a 401k in that it is an account that can be set aside with pre-tax dollars but specifically for the purpose of health care expenses. You decide how much money you want to set aside (although there is an annual maximum contribution), and all or part of that amount can be deducted from your paycheck and placed into the HSA. Then, when you have a medical expense, that tax-free money is available to you.

Health savings accounts allow you to keep the money in your account with no obligation to use the funds within a certain amount of time. You also carry the balance from year-to-year, and can take it with you when you move on from your current job.

Ultimately, there is no definitive answer to whether or not a high deductible plan is a smarter option. This will depend on your health, your likelihood to require health care visits, and numerous other factors that cannot be predicted. However, when coupled with a health savings account, it can be a viable option for relatively healthy individuals who rarely require medical care.

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