Should You Choose High-Deductible or Low-Deductible Health Insurance?

Low-Deductible Versus High-Deductible Health Plans

Having health insurance protects you from paying high medical bills. In the event of a serious illness or injury, your insurance company covers at least some of the expenses involved with your treatment. However, the trade-off is that you have to first pay something to obtain the coverage and then absorb a portion of the costs of treatment yourself. The price you pay to have coverage is the premium, while the amount you have to contribute toward your own care is the deductible.

You have the choice of a plan with either a high deductible or a low deductible. Each offers advantages and disadvantages. A health insurance broker in Santa Rosa can help you determine which can serve you better based on your individual situation.

What Is a Deductible?

In many cases, your health insurance doesn't cover all your medical bills automatically. Most insurers require you to pay a certain amount of the medical expenses out of your own pocket. That amount is your deductible. Once you reach that threshold, your health insurance kicks in and should cover most, if not all, of the remaining medical expenses that you incur for the rest of the year. Deductibles are usually annual, meaning that at the beginning of the year, your deductible amount goes back to zero and you will have to pay a portion of your medical expenses until you meet your deductible limit again.

Here is a hypothetical example of how deductibles work. Suppose you had an accident in which you fell and broke your arm. The total cost to treat your arm, including X-rays, physical examination, casting, and rehabilitation, is $14,000. You have a health insurance policy with a deductible of $6,000. You would be responsible for paying the initial $6,000 of your medical expenses, at which point the insurance company would pay the remaining $8,000, as well as any other medical expenses unrelated to your arm that you incur over the rest of the year.

Now imagine that you have a policy with a deductible of $1,500. In this instance, you would meet the deductible more quickly and pay less out of pocket for your broken arm. The insurance company would cover $12,500 instead of only $8,000. 

A deductible may be confused with an out-of-pocket limit. Both relate to your responsibility for your medical expenses, but they are not the same thing. The deductible is the minimum amount you have to pay before insurance starts covering medical bills. The out-of-pocket limit is the maximum that the insurance company can require you to pay.

How Does Deductible Relate to Premium?

An insurance premium is sort of like a subscription rate. It is the price you pay per month for coverage by your insurance policy, regardless of whether you go to the doctor or not. Your premium amount stays the same from month to month. If you go to the doctor, you have to pay deductible expenses or co-pays in addition to your monthly premium. If you fail to pay your premium monthly, your coverage comes to an end.

There is usually an inverse relationship between your insurance premium and your deductible. In other words, a policy with a high deductible will charge you a lower premium per month, making the policy more affordable. However, if you want a low deductible, you will have to pay a higher monthly premium.

What Are the Advantages of Each?

The advantages of a low deductible should be fairly obvious. You do not have to pay as much of your medical expenses before insurance kicks in and starts covering them for you. Not only that, but low-deductible plans may offer extra benefits. A low-deductible plan can be especially beneficial if you have a chronic condition for which you need to see the doctor often. Young children often need frequent visits to the doctor for check-ups, so if you are a parent, you may benefit from a low-deductible policy.

However, if you are fairly healthy and rarely have to see the doctor, a low-deductible plan may not be to your advantage because of the high premiums. It may be better to have a high-deductible plan that would charge you less per month and put aside savings to cover the deductible if you ever have need. In some cases, a high-deductible health plan can make you eligible for a health savings account. This allows you to contribute pre-tax funds to save for qualifying medical expenses, both big and small. You can also earn interest with an HSA and invest it in mutual funds and stocks. However, the health plan has to comply with requirements set by the IRS to be eligible.

Get Help From a Health Insurance Broker in Santa Rosa

Depending on your financial situation, either a high- or low-deductible health plan may offer you more advantages than the other. For more information about the type of plan you should choose, contact us at 707-823-3689.