High Deductible Health Insurance Plans
Deductibles are stipulations that insurance companies place on their policies that require the insured person to be accountable for a certain amount of each instance of loss before the insurance company will start picking up the tab. While they apply to various types of insurance, such as auto insurance or homeowner insurance, deductibles are particularly common features in health insurance policies. For example, if you have a major surgery that costs $30,000 and your insurance policy comes with a $1,000 deductible, the insurance company will pay $29,000, while you must pay the remaining $1,000. Similarly, if you have a policy with a $1,000 deductible and you incur $800 in emergency room costs, you must pay the entire $800 while your insurance company pays nothing. If you are considering enrolling in a high deductible health insurance plan, you should consider all of the implications of doing so before proceeding.
What Is A High Deductible Health Insurance Plan?
A high deductible health insurance plan is an insurance plan with a relatively higher deductible than standard health insurance plans. Each year, the U.S. Internal Revenue Service defines how high a health plan’s deductible must be in order for it to qualify as a high deductible plan. These limits can change from year to year. According to Buck Consultants, LLC, as of 2012, the minimum deductible is $1,200 for individuals and $2,400 for families. Health insurance policies with deductibles below this level do not qualify as high deductible health insurance plans.
Why Would Anyone Want A High Deductible Health Plan?
The main reason people have for agreeing to high deductible plans is that they lower annual insurance premiums. Deductibles lower premiums because they place limits on insurance companies’ financial responsibilities. Since a deductible limits the financial risk an insurance company is taking on you, this allows the company to offer you a lower rate. For this reason, the higher the deductible, the lower your monthly payments. This is why high deductible insurance plans are often attractive to insurance buyers.
Health Savings Accounts
Many people who have high deductible health insurance plans choose to open a health savings account (HSA). A health savings account is an investment instrument specifically for those who want to put money aside to pay for possible health care expenses in the future. Those who put money into such accounts enjoy tax benefits and employers often help their employees with HSAs by contributing to the accounts. However, in order to qualify for the tax-advantaged status that health savings accounts enjoy, you also have to purchase a high deductible health insurance policy. In this way, you can cover most health-related expenses out of your own pocket through the health savings account, but you can also protect against catastrophic losses such as the costs related to a disease that requires many months of hospitalization and multiple highly specialized surgeries.(For more information on HSAs, see Differences Between Health Savings And Flexible Spending Accounts.)
Possible Drawbacks Of High Deductible Plans
The first drawback of high deductible health insurance is the danger that you may not be able to cover the cost of the deductible which will prevent your insurance from kicking in. Another drawback is that such plans tend to result in less preventive care. This is because the costs for things like normal doctor visits, checkups and examinations are usually left completely to the individual policyholder enrolled in a high deductible plan. If checking out a mole to see if it might be melanoma costs hundreds of dollars, an individual with a high deductible for doctor visits may put it off. However, if such care is covered by a more traditional health insurance plan, the insured individual will be less hesitant about doctor visits. Such financial deterrents to getting preventive care can result in serious problems – and astronomical expenses – down the road. On the other hand, some high deductible health insurance plans do not require deductibles for preventive care, as insurance companies realize that encouraging preventive care in this way keeps them from having to pay for the expensive treatment of neglected conditions.
An advantage of high deductible health insurance plans is that they force individuals to shop around for affordable care. While one clinic may charge $100 or $200 for a normal checkup, another may charge less than $50. While insured individuals are often not even conscious of what the insurer pays for their care, individuals with high deductible health insurance plans have an incentive to find the best price. This results in a more natural state of competition in the health care market, bringing prices down for everyone. Another economic issue is the fact that high deductible plans give people incentive to be careful and avoid risky behavior. For instance, even if a thrill-seeker is not deterred at the prospect of broken bones, he may be deterred at the prospect of facing high hospital bills.
Just like other types of insurance policies, if you intend to purchase a high deductible insurance policy, it is important to shop around. Make sure to compare policies that have similar facets and functions. For instance, some high deductible health insurance policies have lifetime benefit caps, while others do not. Do not compare a policy with a cap to a policy without a cap, and do not compare policies that have dramatically different caps. Get some idea of what kind of lifetime benefit cap you are willing to accept and go from there.
The question of high or low deductible – or no deductible – is a personal one. While various options exist, all of them with their own advantages and disadvantages, there is no single right answer. Weigh the options in front of you and decide whether or not the high deductible you must face if you incur a loss is worth the lower premiums.