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High-Deductible vs Low-Deductible Health Insurance Plans: How to Decide What's Right for You

Whether you're starting a new job or gearing up for Open Enrollment, we'll give you a high-level overview of everything you need to know about health insurance.

October 16, 2020

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While Berxi may have you covered for your professional liability insurance, that's probably not the only kind of insurance you have to consider. For example, one type of insurance that affects almost everyone is health insurance. And there is a lot to consider, whether you're starting a new job or enrolling annually.

If you happen to have a choice between deductible plans, we’ve broken down everything you need to know:

  • High-deductible versus low-deductible health insurance plans
  • FSA versus HSA
  • Copays versus out-of-pocket expenses

We’ll arm you with all the health insurance knowledge and insight you’ll need to make the best decision for you (and your family).

Key Health Insurance Terms

You’re going to hear these terms a lot, so here’s a little refresher on what they mean when it comes to health insurance policies.

  • Coinsurance: A percentage of the total cost of a covered healthcare service. For example, if the office visit is $100 and you've met your deductible, a 20% coinsurance payment will require you to pay $20; the insurance carrier pays the rest. If you haven't met your deductible, you'd likely pay the full $100.
  • Copayments (or copays): Similar to coinsurance, but it charges a fixed amount instead of a percentage. So for every eligible office visit, you'd be expected to pay a flat rate. Typically, if you have a deductible, you don’t have a copay.
  • Deductible: This is the annual amount you have to pay before your insurance kicks in. Let's say your deductible is $1000. Every time you have a medical visit, you'll pay the full amount until you reach $1000. Afterwards, your services are either partially or fully covered.
  • Flexible Spending Account (FSA): This is a tax-free savings plan that can be used to pay for medical expenses, including co-pays, deductibles, and even over-the-counter products! Set up by your employer, you choose how much you want to put into it for the year, up to the federally set maximum. However, if you don’t use all the money by the end of the year, it disappears. FSAstore.com does allow you to use your account on everything from bandages and aspirin to sunblock.
  • Health Savings Account (HSA): Used in combination with high-deductible plans, this is also a tax-free savings account that you invest in monthly and can be used to pay your medical bills. It doesn't expire - it's yours to keep (even if you leave your job) and can be rolled over year after year.
  • In-network/Out-of-network: If your health practitioner is in-network, it means that your insurance company has approved them as a provider and the practitioner will accept your insurance for their services. If they are out-of-network, your insurance company will likely only pay for part of the service, if any.
  • Premium: The amount of money that must be paid monthly, quarterly, or annually. This will typically be taken right out of your paycheck.
  • Out-of-pocket limit: The maximum amount you have to pay for medical care (excluding premiums) within your insurance network. This includes deductibles, copays, and coinsurance for all in-network care. After you surpass the limit, all in-network services are completely covered by your policy.

How to Differentiate Between Types of Deductible Health Insurance Plans

Deductible plans come in many different forms to fit both in- and out-of-network services, as well as the number of family members who will be covered.

To keep it simple, let’s narrow them down into two categories: low-deductible plans and high-deductible plans. We'll go over what each entails, what kind of premiums you can expect to pay, and what unique benefit it offers. Here are some key takeaways from each plan type:

High-Deductible Health Plan (HDHP)

While it has a low monthly premium, the HDHP plan carries a higher deductible, which is the amount you yourself must meet before your plan benefits kick in to cover the cost of care. Until then, you’re limited to coverage only for in-network, preventive care services. In 2019, the IRS defined an HDHP as any plan with a deductible of at least $1,350 for an individual or $2,700 for a family.

HDHPs usually have higher out-of-pocket maximum limits. However, once you meet that limit, the insurance typically pays 100% of the allowable amount for the rest of the calendar year. While the deductible costs are more upfront, you have the benefit of lower premiums. This plan is also eligible for a Health Savings Account (HSA).

HDHPs tend to make sense for individuals or families who don't expect to spend much on medical care in a given year and won’t hit their deductible, so they get to enjoy the lower premium of the plan.

Low-Deductible Health Plan (LDHP)

A low deductible means you pay less upfront but, in exchange, you’ll be faced with higher premium payments. This plan’s usually the one you want to pick if you expect someone on your plan will incur significant medical expenses, whether from one big event (like surgery) or ongoing care for a chronic condition. There’s no huge out-of-pocket expense that you’ll have to worry about when something happens, but you will have to be okay with paying a heftier premium. Also, this plan isn’t eligible for an HSA.

High-Deductible vs. Low-Deductible Health Insurance Plans: How to Figure Out Which One's Right for You

Step #1: Consider how much (or how little) healthcare you’ll need.

Track how much healthcare you and your family needed over the previous years. If you need frequent doctor visits, plan to start a family, or are at high risk of injury, lower deductibles offer predictable costs and more coverage. The downside is that you'll be faced with higher premiums.

On the other hand, if you're rarely sick or injured, you can lower your monthly premiums and save up using an HSA. However, be prepared to pay more out-of-pocket if an unexpected medical emergency comes up.

Step #2: Calculate your total costs and shop around.

Even if you’re not pinching pennies, you’ll still want to shop for the best deal in health insurance plans, calculate the total cost, and compare each plan. Instead of spending time poring over numbers and trying to make sense of it all, there are resources that’ll help do the work for you.

One popular method is a health insurance plan comparison calculator; these tools help compare prices from the marketplace or your employer. You can find free calculators online that allow you to see the total cost of more than one plan. Look at them side-by-side to compare them by monthly premiums and annual deductibles, as well as additional in-network or out-of-network costs.

Final Thoughts

If you have a choice in health insurance plans, choose your health insurance deductible based on your budget and health history. Whether you prefer lower monthly premiums with higher deductibles or vice versa, the most important part is deciding on a plan that will fit you and your family’s needs. And then make sure to use your HSA or your FSA wisely.


Image courtesy of iStock.com/PeopleImages


The views expressed in this article are those of the author and do not necessarily reflect those of Berxi™ or Berkshire Hathaway Specialty Insurance Company. This article (subject to change without notice) is for informational purposes only, and does not constitute professional advice.

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