Traditional Health Insurance Plan or a High Deductible Plan?
When choosing a health insurance plan, it is important to understand exactly what costs you will be responsible for when you visit the doctor, see a specialist, or have a procedure. When planning your financial future, it’s important to understand and plan for the cost of health insurance and any related costs.
We break down the different types of health insurance and their approximate costs, so you can choose the plan that’s the best fit for you.
Basic Types of Plans
A traditional health insurance plan works on a system of copays and deductibles. The plan helps to pay your doctor's bills, lab tests, and prescriptions. With a traditional health insurance plan, you may be financially responsible for paying copayments (or copays), deductibles, and coinsurance.
However, once you have met your coinsurance amount, you will only be responsible for copays, which are usually lower. It’s important to stay within network when choosing a healthcare provider or going to the doctor to keep your costs down with a traditional health insurance plan.
As the name suggests, a high deductible health plan (HDHP) has a high deductible that you must meet before the insurance will start paying their share of your office visits, lab tests, and prescriptions.
In order to qualify as a high deductible plan, the deductible must be at least $1,350 and cannot exceed $6,650 for an individual. Often, HDHPs are combined with a Health Savings Account (HSA) to help offset the out-of-pocket costs.
But these are not the only types of health insurance plans. There are many other types of health insurance that you may qualify for, depending on your financial situation, your work status, and your age. But for the purpose of this article, we’ll be comparing HDHPs and traditional health insurance plans.
Choosing the Right Plan for You
It can be a difficult decision to choose what type of health insurance to purchase. It’s a big decision and can cost you big.
Traditional health insurance plans have a lower deductibles, so this could be a better option for you if you go to the doctor often, or expect to have major medical expenses in the near future, like having a baby.
Alternately, high deductible health plans have a lower premium, which can save you money in the long run. If you are healthy and are looking for a way to cut costs this may be a great option to consider. However, you want to ensure that you have the liquid capital to cover the high deductibles, which as mentioned, can costs you thousands.
Try making a list of your healthcare needs over the next few years, then calculating which plan makes the most sense for you financially.
Breaking Down the Cost of the Plans
If you are worried about how much each insurance plan could ultimately cost you, try adding up the annual cost of each premium, the deductibles, and the maximum out of pocket expenses for each plan. This will give you an estimate of how much each plan will cost you.
Let’s say you have a traditional insurance plan that costs $290 monthly, with an annual deductible of $1,000 with a coinsurance out of pocket maximum of $2,000. This plan would cost you $290 x 2=$3,480 +$1,000+$2,000=$6,480 plus the cost of copays and prescriptions throughout the year.
If you have a high deductible insurance plan with a deductible of $5,000 and a monthly premium of $110, you would end up paying $6,320 ($110 x 12 + $5,000). There would not be any additional copays for prescriptions or doctor office visits. So in this case, a HDHP would be cheaper.
Finding the Right Insurance
It is important to remember that as you consider the types of insurance, you take into account the likelihood that you will be using the maximum amount. This is a good way to determine the best plan for your needs. If you decide to go with a high deductible plan you should take advantage of an HSA, which is a tax-advantaged savings account to help pay for medical expenses.
Remember, there are various different types of health insurance: those through your employer, through an independent health insurance company, even health exchanges if your employer doesn’t offer health insurance. Also keep in mind that if you don’t get health insurance, you may have to pay a tax or fees through the Affordable Care Act.
Updated by Rachel Morgan Cautero.