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High Deductibles: Pros and Cons

A stethoscope placed on several bill stacks to portray the pros and cons of high deductibles.

For families living on a budget, every necessary expense seems like a lot. And even though insurance is a necessity, it can still feel like a burden. Whether it’s car insurance, health insurance, home insurance – or any kind of insurance – most people are always looking for ways to save on their policies.

If this sounds like you and your family, you are not alone. If you are looking for a lower monthly payment, you may wind up with a high deductible plan. The popularity of high deductible health plans is they give you the cheapest rate possible and keep you covered, while not emptying your bank account at the same time. But is a high deductible plan a good thing?

Understanding the differences between plans, deductibles, out-of-pocket costs and more can be confusing. Everyone knows there are health benefits to picking the right policy. To help you navigate these options and pick the best one for your family, here are some pros and cons about high deductible plans.

Pros of High Deductibles

High deductibles are a good option for a single person and families who in good health, don’t have chronic conditions and don’t go to the emergency room very often. Also known as high-deductible health plans (HDHPs), they help people with cost savings as long as they don’t need doctor visits very often.

Just because these plans are cheaper with a low monthly premium compared to ones with higher premiums, it doesn’t mean they completely skimp on coverage. There is the same amount of coverage to make sure you can see doctors, get medicine, seek mental health treatment, get prescription drugs and visit a specialist (if needed). Your out-of-pocket expenses will just be higher.

Cons of High Deductibles

The single biggest challenge you’ll face with HDHPs is paying out-of-pocket costs for qualified medical expenses. With auto insurance, it can represent a huge, ongoing financial drain if you have to use it often, underscored by the fact that you’ll still be responsible for monthly payments.

Young people without preexisting health conditions, for example, benefit from cost-effective health insurance with high deductibles. However, families with young children have a good chance of seeing the possible downside of how family members can have negative impacts on your healthcare costs. The worst-case scenario, at least in the short term, is electing to have a HDHP and then have someone in the family develop an expensive, long-term or chronic illness, of course.

At least with a HDHP, once you meet your deductible, you won’t have to pay it again until the upcoming year begins a new 12-month period. But if you need medical care and you don’t reach your deductible or your out-of-pocket maximum, you’ll find yourself still coughing up cash whenever you need medical care.

African American child plays with stethoscope around doctor's neck

Costs of Health Care

Your health insurance coverage is typically good for one year. Your choices for health care will depend on whether you are using a private traditional health plan, an employer plan, or a low-cost plan through the Affordable Care Act. In most cases, you’ll have the ability to choose one or another set deductible rate (higher deductible or lower deductible), although if you are purchasing your plan privately, you may be able to set your own deductible.

Let’s brush up on some of the terms you may see on a policy.

  • Out-of-pocket maximum: The out-of-pocket maximum amount you see on your policy is the most you will spend in one year of coverage. You may not reach that number, but if you do have a serious medical issue or a catastrophic injury, this is the limit of how much you will have to pay. This is also referred to as your out-of-pocket limits.
  • Qualified medical expenses: Your insurance is there to help you pay for qualified medical bills. Similar to covered events in a car insurance claim, your insurer has listed in your policy what it will and will not cover. It always pays to understand the qualified medical expenses (or covered events) in any insurance contract.
  • Doctor visits: Most policies allow you to go for doctor visits as often as you want, although there may be a co-pay. Doctor visits can be divided into a primary care physician, which may or may not include a co-pay, and specialists, which may include a higher co-pay.
  • Copay: A set amount you must pay each time you visit your doctor’s office or a specialist.
  • Coinsurance: This is the percentage you must pay after your deductible has been paid and you use your plan for a covered medical procedure. The most common coinsurance is 80/20 – meaning after the deductible is paid, you will owe 20% of the cost of a covered event and the insurance will pay 80%. This is also common in home insurance
  • Preventive Services: Many plans offer free or reduced preventive care, such as annual mammograms. This is thought to result in less long-term or chronic conditions, since it can identify these issues and treat them before they become life altering.

These are just some of the terms you may see when researching a policy for yourself and your family. Most of these will be in your policy whether you choose a HDHP or one with a lower deductible.

Different Types of Health Plans

Along with medical terms and definitions, you’ll need to understand the different types of plans available so you can make an informed decision. A high-deductible plan is a traditional plan like the ones below, except that you pay more money out of pocket when you have claim. Typically, this allows you to pay a lower monthly premium.

Employers Plan

Many large employers offer health insurance as part of employee benefits. In some cases, employees pay well below what they would on the open market for this care. In others, the expense may still be more than employees can afford. It depends on the employer contribution to the plan.

Some employers also offer a health reimbursement arrangement, where they pay the employees a stipend to be used toward purchasing their own plan (typically in the health marketplace).

Affordable Care Act (Health Marketplace)

These plans are designed to offer a wide variety of coverage and monthly premium payments, geared towards a person’s income. The federal government administers the health marketplace, although your state may run its own portal. People can choose from different levels of plans and many qualify for a subsidy from the federal government to help them pay for their plan.

The Health Marketplace has an Open Enrollment period each year, as do most employer-sponsored plans, and there are strict guidelines that need to be met within that time period to have coverage for the upcoming year. However, there are several reasons why people may qualify to enroll during a Special Enrollment period, such as starting a new job.

Health Savings Account

An HSA is specifically designed to work with HDHPs. It allows you to save money through HSA contributions by you and your employer or both. It is called a tax-advantaged account because there are no federal taxes on contributions to HSA-qualified HDHPs, the amount can be carried over from year to year, but the tax benefits mean it can only be used for qualified medical expenses or there will be a tax penalty. There is also a maximum contribution limit through the end of the calendar year.

PPO Plans

A Preferred Provider Organization allows participants to use any medical provider in their plan’s network for a decreased amount. Going to a doctor or hospital outside of your network will cost more money.

Find Affordable Health and Auto Insurance Plans Online Today

Freeway Insurance company offers a wide variety of plans with high deductibles for budget-focused people. Feel free to reach out to a Freeway Insurance customer service representative with any questions you may have at (800) 777-5620. Or you can find a fast and free online quote or visit us at one of our convenient locations.

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