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Should I choose a high deductible plan?

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Pros and cons of high deductible health plans

Looking for health coverage? If you’re comparing a few different plans, you might be considering a high deductible health plan. These typically have cheaper premiums than other plans, which has led to a significant rise in popularity. According to Becker’s Hospital CFO, 90 percent of marketplace enrollees have a high deductible health plan. Among those with employer coverage, 8 percent more employees chose high deductible health plan in 2016 than the year prior, according to the Kaiser Family Foundation.

This growth is closely aligned with rapidly rising premium prices. High deductible plans have considerably lower premiums than other plans.

But if that sounds too good to be true, that’s because in some cases, it is. High deductible plans can be a great option for some consumers, but a poor choice for others. It depends on your health needs and financial situation.

Is a high deductible plan right for me?

If you’re considering a HDHP, the first thing to do is make sure you understand deductibles. The deductible is the amount you will be expected to pay in full before your health plan kicks in to cover medical bills. If your deductible is $1,500, you will pay 100 percent of all bills until you hit that amount. Then, your insurance will kick in to cover a portion of remaining bills. You will still be responsible for your portion, called coinsurance, which is typically around 20 percent of expenses.

In order to be considered a HDHP, the deductible must be a minimum of $1,300 for individuals or $2,600 for family coverage, though they can be higher. Let’s look at a few pros and cons of HDHPs:

Pros:

  • Cheaper premiums
    As mentioned, HDHPs have lower premiums than plans with lower deductibles.

  • Access to a Health Savings Account
    Consumers with HDHPs can utilize HSAs. These are tax-advantaged savings accounts used for qualified medical expenses. Any money you contribute to your HSA is not taxed, and you can use it for out-of-pocket expenses.
  • Preventive care covered
    With HDHPs, preventive care like routine screenings, physicals and vaccines are typically covered before you meet your deductible. You might pay a copay, or they might be fully covered, but you will not have to pay the full bill for these services, even if you haven’t met your deductible. Be sure to check the specifics of your particular plan, however—different plans cover different services.

Cons:

  • Higher out-of-pocket expenses
    As mentioned, you will be responsible for the entire deductible. Some deductibles are thousands of dollars. If you do not have very much in savings, or are unable to contribute anything to an HSA, you might wind up owing hundreds or thousands that you cannot pay.
  • Cheaper premiums still add up
    Many people who enroll in a HDHP find themselves frustrated by paying premiums every month with very little covered before they meet their deductible. Before your insurance kicks in, you will pay the entirety of your deductible, but will also pay your premiums, too. You should calculate your annual premium cost plus your deductible, as well as your out-of-pocket maximum, to get a true sense of how much you might spend in a year.
  • HSAs benefit wealthier people
    As long as you contribute something, HSAs are beneficial for everyone. But the tax-advantaged status means the more you contribute, the more benefit you receive. People who can stow away the maximum annual contributions, $3,400 for individuals and $6,750 for families, reap the most benefit.

So, is a high-deductible plan right for you? You should ask yourself whether you expect to use many healthcare services next year, and if you will be able to pay for them if you do.

In general, HDHPs are best for younger and healthier people. If you typically only visit the doctor to get an annual checkup, flu shot, and maybe a strep test or bronchitis prescription, you will probably save money with a high deductible plan, especially if you can contribute to your HSA.

If you have a chronic condition and are concerned about your ability to pay out-of-pocket, you might be better off paying more in premiums upfront and having a lower deductible.

Want to talk to a noncommissioned health insurance advisor about your options?

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