“Question:
I am shopping the federal Marketplace for a new health insurance plan. Though I understand the basics of health insurance, deductibles have me confused. I am the sole breadwinner, living in Houston with a wife and two young children. All of us are relatively healthy, though we’ve been talking about having another child. Given these circumstances, should I choose a high-deductible plan to save money on monthly premiums or a low-deductible plan with higher premiums?
Answer:
Deductibles are a common source of confusion, and with the vast array of options in the Marketplace, your difficulty choosing the right plan is understandable. Understanding how high- and low-deductible plans work, how monthly premiums play into your decision and how these plans can affect your coverage will help ensure your family has the most appropriate health care plan in the coming year.
How deductibles work
Health insurance deductibles are the amount of money you have to pay toward your health care before your insurance starts covering costs. Deductibles can range from a few hundred to thousands of dollars, depending on the policy. Some plans (typically HMOs) don’t have a deductible at all.
Generally, once you meet your deductible for the year your insurance will require you to pay coinsurance, which is another form of cost-sharing, until you reach your out-of-pocket maximum. Once this cap is met, your insurer pays 100 percent of covered services.
Insurance plans are a balancing act between deductibles and premiums. The more you are willing to pay each month on your premium, usually the lower your deductible.
High-deductible plans
High-deductible health plans, also referred to as “consumer-directed” plans, are plans whose deductibles surpass a limit set by the IRS. For 2015, those deductibles are no less than $1,300 for individual coverage or $2,600 for family coverage.
For the insurer, a higher deductible means you are responsible for a greater amount of your initial health care costs, saving them money. For you, the benefit comes in lower monthly premiums.
If you have a high-deductible plan, you are eligible for a Health Savings Account (HSA). These accounts allow you to set aside a limited amount of pre-tax dollars for medical expenses. In the case of employer-sponsored health insurance, companies may contribute to their employees’ HSAs, sometimes even matching employee contributions, leading to considerable pre-tax savings. Generally, your HSA is linked to a debit card that you can use on out-of-pocket costs, including that high deductible. Because the money in your HSA isn’t taxed like the rest of your income, it serves a dual purpose: helping you set aside money to cover health care costs and reducing your tax burden.
However, high deductible plans do have downsides. Meeting a high deductible can seem insurmountable in the face of costly medical bills.
High-deductible plans make sense for people who are generally healthy, and for those without young children. Because preventive care is free under the Affordable Care Act, and many policies allow you to see your primary care doctor with a copay rather than paying toward the deductible, a few visits to the doctor per year won’t be a financial setback for an otherwise healthy person.
Low-deductible plans
With a low-deductible plan, or even a no-deductible plan, the amount you have to pay before your insurance company takes over is far less overwhelming. But you’ll pay a much higher premium for these plans. Though specifics vary by location and plan details, a low-deductible plan can cost at least twice as much per month as a high-deductible plan.
Plans with lower deductibles and higher premiums are recommended for people who expect a considerable amount of medical care. Those with chronic illnesses, the need to see several specialists, or possible hospitalizations in the coming year will save more in the long run with a lower deductible. Also, families with small children can benefit from a low-deductible plan, particularly if the children are involved in sports or frequently ill.
My advice to you
Without knowing your income and monthly expenses, it’s difficult to recommend a plan outright. While you mentioned your family is relatively healthy, you are considering adding a new family member. Both of these are important considerations. The following tips should help you get a cost-effective and comprehensive plan for your family.
1. Look at your eligibility for discounts. Depending on your income, you could qualify for assistance on your monthly premiums or cost-sharing expenses. Make sure you explore these potential discounts before writing off a plan due to cost.
2. Narrow down your choices to just a few plans—perhaps one low-deductible and one high-deductible health plan.
A quick search on Healthcare.gov reveals a family of your size in Texas could pay around $620 per month on a bronze-level PPO with a high deductible of $12,700. At the other extreme, a gold-level PPO with a low deductible of $1,500 for the entire family comes at a premium of nearly $1,400 per month. These totals do not have any discounts applied.
By setting a maximum monthly budget for your premium, you can narrow the initial pool of options down considerably.
3. Estimate your anticipated medical costs for the coming year and compare coverage. A few important notes on estimating future medical expenses:
Preventive care, including your children’s annual exams and immunizations and routine prenatal care visits for your spouse, come at no cost to you under the Affordable Care Act.
Don’t forget to include prescription costs.
Budget for an emergency room visit or two if your children are active in sports or otherwise accident-prone.
If you do have another child, labor, delivery and hospitalization will likely make up a good portion of your expenses, as even an uncomplicated vaginal birth results in anaverage of $30,000 in hospital charges. With a zero- or low-deductible plan, your insurance will start covering a portion of these costs right away, whereas a high-deductible plan won’t kick in until you’ve paid the deductible.
When you add up all of the anticipated expenses, including your monthly premium, one plan will likely stand out as costing you less over the course of the year. But don’t stop there.
4. Consider additional features. Deductibles are only one consideration among many when shopping for health insurance. Network size, out-of-pocket maximums, plan structure and covered expenses also are important to think about. Once you compare your anticipated medical costs for 2015 with your coverage options, look more closely at the plans you’re considering to ensure they provide the right type of coverage for the money you expect to spend.
5. Determine your priorities. If you’re comparing a high-deductible plan with a low-deductible plan, your decision may come down to what you value more: saving cash on premiums if you’re fortunate enough to avoid medical expenses, or feeling assured that you don’t have to meet a deductible when expenses arise. This part of the decision is largely personal, but crunching numbers beforehand will make the choice easier.