It’s the ultimate insurance debate: pay a higher deductible or higher premium? With many employers looking for ways to cut costs, the question to increase your monthly health insurance premiums or to pay a higher deductible is a concern you may be facing sooner rather than later.
First, let’s clarify the difference between a premium and a deductible.
- A premium is the amount of money charged by your insurance company for the plan you’ve chosen. It is usually paid on a monthly basis, but can be billed a number of ways. You must pay your premium to keep your coverage active, regardless of whether you use it or not.
- A deductible is a set amount you have to pay every year toward your medical bills before your insurance company starts paying. It varies by plan and some plans don’t have a deductible.
In 2017, more employers than ever included a high-deductible option on their 2017 menu of health plan offerings. An August survey of 600 U.S. companies by benefits consultancy Willis Towers Watson found that by 2018, nearly half will offer these plans exclusively. In 2006, high-deductible plans covered just 3 percent of workers. Fast-forward to 2016, and that figure was 29 percent, benefits consultancy Mercer found.
High Deductible Health Plans (HDHPs): Pros and Cons
HDHPs work differently than traditional POS (Point of Service) or PPO (Preferred Provider Organization) plans in that all healthcare expenses are paid out-of-pocket until the deductible is met. The concern with high deductibles is that it causes patients to not seek medical treatment because they fear the expense. Ultimately, this causes more extensive issues later on, such as those relating to diabetes, hypertension, depression, even cancer.
- Premiums are typically lower than with POS or PPO plans
- Networks are not necessarily narrowed, as with HMOs
- People who rarely use their health benefits may save money
- If you are not on expensive medications, your monthly bills may be lower
- Out-of-pocket expenses are not the market rate, but the negotiated rate between the healthcare provider and insurance company
- Policyholders can open a health savings account (HSA), which never “expires,” to help cover out-of-pocket expenses
- People managing chronic illnesses find that their out-of-pocket expenses are high
- Prescriptions, office visits, and diagnostic tests are completely out-of-pocket until you reach your deductible
- If you need surgery, you will need to hit your deductible before the insurance company will pay anything
- If your monthly out-of-pocket expenses are high, you aren’t taking full advantage of your HSA
- Your deductible can be quite high (sometimes as much as $13,000 for families)
Those who initially lean toward higher insurance premiums are usually looking to save money in the long run, while those who originally gravitate to the higher deductible plans are looking to put more money in their pockets right now. However, sometimes it’s not that simple.
A 2011 study by the Kaiser Family Foundation found American families are increasingly paying more and more out of pocket for their health care costs – a whopping $15,073 for a family health insurance plan. However, it’s unlikely you’ll pay that full amount. With most employer-sponsored health care plans, your company pays a hefty dose of the premiums.
The Bureau of Labor Statistics reports that in 2008, private sector companies paid as much as 71 percent of family health insurance premiums. Public sector employers dished out even more – up to 73 percent.
While a high deductible plan and its subsequent lower premiums can put more money in your pocket, as well as your employer’s pocket, right now, it isn’t always the best choice. The Kaiser Family Foundation study also determined that the average deductible on these consumer-driven plans was nearly double that of traditional health insurance. On top of that, plans with a high deductible often come with a higher out-of-pocket max as well, sometimes as high as $10,000 a year for a family insurance plan.
Which plan is right for you?
As health insurance is not a one-size fits all item anymore, each person has to weigh the pros and cons of high deductible health plans against how they might need to use the policy. A person without an extensive medical history and unmarried without children might be able to risk such a plan. However, if an individual or someone in the family sees a doctor once a month or needs to manage a medical or mental condition, perhaps a PPO would be a better.
Ultimately, choosing the right plan for you and your family can seem like you’re gambling with both your health and your money. If you are unsure of the insurance plan your company is offering you, a licensed insurance agent can assist you in finding a plan directly from the best health insurers.