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Choosing Between High Deductible and High Premium Health Plans

If you are living in 21st century America, then you probably want the most health insurance coverage possible at the lowest cost.  There are a multitude of health insurance options from a myriad of insurance companies, so it can be difficult to determine which is the best choice for you. All health plans will cost you a certain amount monthly to maintain, called the premium, and almost all health plans will only cover the costs of medical services beyond a certain out-of-pocket expense, known as the deductible.

There is usually a trade-off between premiums and deductibles.  If you decide on a plan with a high premium, you will likely pay a smaller deductible when you see a doctor. Conversely, if you opt for a low monthly premium plan, you will probably have to pay more when you obtain health care.

The Basics of Health Insurance

Health insurance is a financial protection plan that helps you pay for regular and emergency medical services.  You may obtain health insurance through a private insurer, through your employer or you may qualify for one of the government’s health insurance plans under Medicare or Medicaid. Medicare is only available to Americans approaching retirement age, while you must have income below a preset maximum to qualify for Medicaid.

You must obtain a health insurance policy from one of these public or private agencies and maintain insurance coverage by paying your monthly premiums.  In return, your insurer will make payments to physicians, hospitals or pharmacies when you utilize their services.  Typically, your insurer will require you to pay a certain amount yourself which will go towards your deductible.  You must usually pay this deductible in full for the year before your insurer will start making payments.  Even if you have paid out your annual deductible, you may still be required to make co-payments or coinsurance fees depending on your plan.

Which Saves You Money?

Not all plans are ideal for everybody.  For instance, if you are young and relatively healthy, then you may opt for a lower premium plan with a higher deductible, because you are less likely to need healthcare often. Many people with limited incomes often choose high deductible plans to save money, but you should be aware that if a major medical emergency occurs, you may be required to pay thousands of dollars before your insurance begins paying out.

However, if you are older or suffer from ongoing health issues, it might be wiser to choose a health plan that has a lower deductible.  You will pay more each month in premiums, but, if you see your physician fairly often, you will probably save money on out-of-pocket expenses. Many people choose a health plan with a higher monthly premium for peace of mind. The leading cause of bankruptcies in the U.S. is unpaid medical bills, so health insurance—with robust coverage—is often a wise financial decision.

The Popularity of High Deductible Plans

Given the economics of insurance, it shouldn’t be surprising that high deductible plans are the most popular in the country. There are now federal tax laws that financially penalize U.S. adults without health insurance (unless they fall below a federal income threshold), and the cheapest policies are those with higher deductibles.  Furthermore almost 70 percent of U.S. employers now offer high deductible plans to employees in an effort to minimize costs.

The insurance industry, as a whole, is also gravitating towards higher deductibles. While growth in premiums was only 3 percent in 2016, the average deductible has risen almost 12 percent for the year.  In 2015, the average annual deductible was $1,318, but it grew to $1,478 in 2016.

Health Savings Accounts

Many employers will help offset the high deductible of their plans with a health savings account.  A health savings account will allow your employer to deposit money into a special account that is not taxed until withdrawn to pay for medical services.  When you incur a balance for health care services, you may tap into the health savings account to pay for the out-of-pocket expenses. However, once funds are taken out, they will shrink after taxes, so plan accordingly. Some employers will offer to deposit a certain amount into the account as well.

Your employer may also offer you a flexible spending account.  Although similar to health savings accounts, flexible spending accounts have a very important difference. Your employer will set aside tax-deferred funds taken from your paycheck for use in paying medical bills, but if you don’t use all of the money during the year, the remainder left in the account will be absorbed by your employer.

Smart Shopping

If you decide that a high deductible health plan is right for you, you may wish to adopt a proactive approach to health care services.  You will be paying a larger portion of any medical bills, so it is in your best interest to find value for your dollar.  More hospitals are beginning to publish their fees for a variety of procedures.  Some agencies like Medicare have started disclosing medical fees, and you may utilize a number of private consumer services to learn how much a treatment may cost you.

You may also wish to discuss pricing with your doctors.   Many physicians understand that cost can be an obstacle and are willing to negotiate prices or suggest less expensive alternatives. Even if you have already received the services, your physician may still consider giving you a discount.

Finally, you should set aside savings to help pay for a medical emergency. It is in your best interest to save at least as much as your deductible amount.  If your employer does not offer a health savings account, you may set one up independently.  According to the Internal Revenue Service, you deposit up to $3,350 for an individual, and up to $6,750 for a household. A little planning ahead of time can save you from a high interest loan, maxing out your credit cards or filing for bankruptcy.

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