Are High Deductible Health Insurance Plans a Good Idea?

When looking at different health insurance plans, one of the biggest decisions you’ll likely have to make is whether or not to enroll in a high-deductible plan. Regular health insurance plans offer more predictable medical costs and often more comprehensive coverage. Unfortunately, the monthly premiums for these plans can be out of budget for a lot of people.

That’s why some look to high-deductible health insurance plans in order to cut the costs of healthcare. Let’s take a look at exactly what a high-deductible health insurance plan is, as well as its benefits and drawbacks.

What Is a High-Deductible Health Insurance Plan?

A high-deductible health insurance plan is defined as a policy in which the amount an individual must pay out-of-pocket for medical expenses before the health insurance coverage kicks in is “high.”

What is considered “high” is determined by the IRS. For 2017, the annual deductible for a health insurance plan must be at least $1, 300 for an individual and $2, 600 for a family in order for it to be considered a high-deductible health plan.

High-deductible health plans (HDHPs) do cover preventive care whether or not you’ve met your annual deductible. This is required by federal law. However, you’ll have to pay for all of your other medical expenses out-of-pocket until you reach your annual deductible.

After that, the health insurance company will pay for your healthcare according to the benefits outlined in your health plan. After you’ve met your annual deductible, medical expenses are usually then covered at 100%.

Benefits of a High-Deductible Health Insurance Plan

There are several benefits to being enrolled in an HDHP. The main benefit is that you save money on monthly premiums. Generally speaking, the higher the deductible, the lower your monthly premium will be. If you don’t have any chronic conditions that require frequent doctor visits or don’t plan to have any major medical expenses in the coming year, you can save a considerable amount of money by choosing an HDHP and enjoying lower monthly premiums.

Another benefit is that you’ll be eligible for a health savings account (HSA). An HSA is a tax advantaged savings account that’s used for medical expenses. HSAs are tax advantaged because contributions are tax-deductible. Earnings also grow tax-free, and withdrawals are untaxed.

Because of all of this, you can experience a lot of savings over time by enrolling in an HDHP and using an HSA for your medical expenses.

Learn More: Why We Are Sticking With Our HDHP (and an HSA)

Drawbacks of a High-Deductible Health Insurance Plan

There are several drawbacks to being enrolled in an HDHP, as well. The main drawback is the possibility of a large medical bill. For example, if you’re in an accident and have to have a major surgery worth thousands of dollars, you’ll have to pay your entire deductible upfront before your health insurance covers its share of the cost. Unless you’ve been saving money for medical expenses in an HSA or other account, this large medical bill could seriously hurt your finances and even put you in debt.

Another drawback is that you may be more likely to forego medical care because of the upfront cost. If you enroll in an HDHP in order to save money, you may not be able to afford one-off visits to specialists or even a trip to the emergency room. If you find yourself avoiding necessary medical care because you can’t afford to pay the full cost up to your annual deductible, then it may not be a good idea to enroll in an HDHP.

Final Thoughts

Given these benefits and drawbacks, there’s a lot to consider with it comes to enrolling in a high-deductible health insurance plan. The savings benefits are definitely worth looking into. In addition to paying lower monthly premiums, you can take advantage of an HSA, which offers multiple tax benefits. The monthly premium savings coupled with the HSA could be a good setup for people who want to have more control over how they spend their healthcare dollars.

This is less beneficial for people who visit doctors frequently, are planning to have babies in the near future, or otherwise expect to spend a lot of money on medical expenses. Instead, these folks may benefit from a health insurance plan with a lower deductible.

I’ve personally been enrolled in both types of plans at different points in time. My preference is to have a regular health insurance plan that offers comprehensive coverage. I’d rather pay a little more each month than have to worry about being sent large medical bill if an emergency happens.

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