Traditional Health Insurance Plan or a High-Deductible Plan?
Choosing Which Is Right for You
When choosing a health insurance plan, you need to understand exactly what costs you will be responsible for when you visit the doctor, see a specialist, or have a procedure. Your health care costs can have a significant impact on your financial future, so it’s important to understand and plan for the cost of health insurance and any related costs.
There are many different kind of health insurance plans to choose from, depending on your financial situation, work status, and age. But, for the purpose of this article, we’ll be comparing the costs of high-deductible health plans and traditional health insurance plans.
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 deductible, you are usually only responsible for coinsurance, until you reach your out-of-pocket maximum. It’s important to stay within network when choosing a health care 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 its share of your office visits, lab tests, and prescriptions.
In order to qualify as a high deductible plan in 2020, the deductible must be at least $1,400 for an individual and $2,800 for a family. Often, HDHPs are combined with a Health Savings Account (HSA) to help offset the out-of-pocket costs.
Choosing the Right Plan for You
Deciding on your health care plan comes down to your personal circumstances and financial situation. Traditional health insurance plans have 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, such as having a baby, in the near future.
Alternatively, 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 deductible.
Try making a list of your projected health care 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 cost you, try adding up the annual cost of each premium and the maximum out-of-pocket expenses for each plan. This will give you an estimate of how much each plan could cost you. You also need to factor in the deductible, however, as this gives you an idea of how much money you will have to pay earlier in the plan year.
Let’s say you have a traditional insurance plan that costs $290 monthly, with an annual deductible of $1,000, a coinsurance of 20%, and an out-of-pocket maximum of $2,000. This plan would cost you, at most, $5,480.
$290 x 12 = $3,480 + $2,000 = $5,480
If you spend to the max on this plan, it would look like this: You pay copays and all costs until you reach your $1,000 deductible. After that, you would pay 20% of all costs for the remaining $1,000 until you reach your out-of-pocket maximum.
If you have a high deductible insurance plan that costs $110 per month and has a deductible of $5,000, a co-insurance of 50%, and a maximum out-of-pocket of $8,000, you would end up paying, at most, $9,320.
$110 x 12 = $1,320 + $8,000 = $9,320
If you spend to the max on this plan, it would look like this: You pay copays and all other costs until you reach your $5,000 deductible. After that, you would pay 50% of all costs for the remaining $3,000 until you reach your out-of-pocket maximum.
Finding the Right Insurance
Again, it's important to consider your situation. If you're relatively healthy and never visit the doctor outside of your annual checkup, then the HDHP would end up costing you not much more than your premium, which would be significantly less than the premium on the traditional plan. To choose a plan, you should consider a careful assessment of :
- Your health
- Financial obligations
- Family members that need coverage
- Risks that you feel comfortable taking
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. This can offset your medical expenses significantly.
Remember, there are various different types of health insurance: those through your employer, through an independent health insurance company, and health exchanges under the Affordable Care Act. Compare all of your options before making your choice.
Updated by Rachel Morgan Cautero.