What is a High Deductible Health Plan?

While investigating your health insurance options, have you asked yourself, “What is a high deductible health plan?” If you have, you’re in luck, because we’re going to explain the pros and cons of a high deductible health plan to help you decide if that’s the best option for you.

Many Americans explore every avenue available to them in order to find an insurance plan with the lowest monthly premiums. One solution to lowering your health insurance premium is to choose a high deductible health plan. The biggest disadvantage to a high deductible health plan, however, is that if you were to become seriously ill, you’ll get hit hard.

The fear of such a situation has caused proponents to opt for the term consumer-directed health care plan instead of high deductible health plan, because they’re easier words to swallow. Whichever name you prefer to use, a high deductible health plan works like this: your insurance policy costs you a relatively low premium, but the benefits of your plan don’t go into effect until you’ve reached your deductible in out-of-pocket payments. What constitutes a “high” deductible? It’s often upwards of $3,000.

The biggest, most evident attraction to a high deductible health plan for consumers is the low premium. The president and CEO of Change Healthcare, Doug Ghertner, explains that, “When you talk to consumers, they tend to gravitate to the plan with the lowest premium.” In fact, roughly 70% of employers offer high-deductible insurance plan options.

There are two common types of payments that are required of you when you get medical treatment when you have insurance: a co-pay and co-insurance. A co-pay is a flat fee that you’re required to pay out-of-pocket when you go to the doctor or when you get a prescription. Your insurance card generally has a list of the co-pays for which you’re responsible printed on it; they usually include visits to your Primary Care Physician (PCP), specialists, prescription medication, and hospital visits. If your insurance plan operates with co-insurance payments, you’re required to pay a percentage of the total bill for all of your health care needs. Oftentimes with a high deductible health plan, you will still need to go out-of-pocket for co-pays or co-insurance, even after you’ve met your deductible.

Even though a high deductible health plan does carry a heavy weight when it comes to out-of-pocket expenses, the low monthly premium is worth it to many people. For example, let’s look at someone who pays $220 a month for a high deductible health plan, with a $1,500 deductible before his insurance kicks in. If he’s relatively healthy, he likely won’t need to go to the doctor frequently, which means he won’t have to pay very much into that deductible. He has piece of mind knowing that if he ever gets seriously sick or injured, he has the necessary health insurance coverage to help him through his recovery, but it’s not a tremendous financial burden every month just to support a “what if?” scenario. He winds up paying significantly less with this plan than he would with a low-deductible plan.

Another benefit of a high deductible health plan is that they’re usually paired with a healthy savings account or a flexible spending account. These types of accounts allow you to bank pre-tax dollars to save for your health care needs, and then you can use the funds from your account to pay your out-of-pocket medical expenses. While it’s still costing you real money, pre-tax money goes further than post-tax money. For example, if you’re in the 25% federal income tax bracket, in order to take home $100 after taxes, you need to make $133.33 before taxes. If you have a $100 medical bill, and you pay it from your flexible spending account, you were able to save that $33.33 by paying with pre-tax dollars.

In our next blog post, we’re going to continue to explore the answers to the question what is a high deductible health plan? Stay tuned, and ask us any questions you’d like answered @InsQuoteOnline on Twitter!

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