High deductibles and low deductibles are two of the most important factors to consider when selecting a health insurance plan. It’s crucial for anyone with an interest in their health and financial wellness to understand how each of these terms impacts coverage and cost. In 2022, The individual deductible of a High Deductible Health Plan (HDHP) is at least $1400 and the individual deductible of a Low Deductible Health Plan (LDHP) is less than $1400.
Knowing the differences between high deductibles and low deductibles can help you make an informed decision when selecting a health insurance plan. Low deductibles are usually associated with more traditional health insurance plans and may offer coverage for preventive care, while high deductibles typically have lower monthly premiums and cover fewer services. Understanding the differences between these two types of plans will allow you to weigh the pros and cons of each in order to decide which is best for your needs.
This article will explain everything you need to know about high deductibles and low deductibles, including the pros and cons of each so that you can make an informed decision when considering your options.
What Is A Deductible?
A deductible is an amount of money a person must pay out-of-pocket toward health care expenses before their health insurance plan will start covering the remainder. Deductibles may apply on a yearly or per service basis and are commonly required for services like hospital stays, surgeries, doctor visits and prescription drugs. The amount of deductible that a policyholder pays for various services can vary depending on their individual plan. Knowing details about your deductible can help you understand what costs you may be responsible for when receiving medical care.
What is An Insurance Premium?
An insurance premium is a payment made to an insurance company in exchange for coverage. Insurance premiums play an important role in protecting consumers from financial loss in the event of an accident, injury, or death. Premiums vary based on the type and amount of coverage chosen, as well as the individual’s risk profile. Policyholders typically pay their premiums on a monthly or yearly basis in order to maintain continuous coverage.
What’s The Correlation Between Deductibles and Premiums?
Generally, the higher the deductible, the lower the premium. This is because plans with a high deductible are designed to cover major medical expenses and not every-day medical care. As a result, they come with lower monthly premiums than plans with a lower deductible. The opposite is also true: plans with a low deductible will have higher monthly premiums but are more likely to help pay for some of your other health care costs. Ultimately, it’s important to balance cost and coverage when choosing an insurance plan that fits your needs.
High-Deductible Health Plan (HDHP) vs. Low-Deductible Health Plans (LDHP)
A High Deductible Health Plan (HDHP) and a Low Deductible Health Plan (LDHP) are two types of medical insurance plans that have different cost structures. HDHPs typically require the policyholder to pay higher deductibles, but usually offer lower monthly premium payments. On the other hand, LDHP plans typically have lower deductibles and higher premiums. The choice between an HDHP or an LDHP will depend on individual needs and financial resources, as well as the type of coverage offered by each plan.
HDHP
- Monthly Premium: Lower
- Annual Deductible: Higher
- Out of Pocket Maximum: Individual: $7,050; Family: $14,100
- Coinsurance: Higher
- Who Should Consider? Someone who has good health and doesn’t need to access medical care a lot. Suitable for individuals who are able to pay high medical deductibles up-front in exchange for lower premiums.
LDHP
- Monthly Premium: Higher
- Annual Deductible: Lower
- Out of Pocket Maximum: N/A
- Coinsurance: Lower
- Who Should Consider? Someone with preexisting conditions or those requiring regular access to healthcare services, as this plan may cover such costs more easily than an HDHP. Also suitable for individuals who don’t have the ability to pay high deductibles up-front in order to avail of lower premiums.
Who Should Consider an High Deductible Health Plan (HDHP)?
Individuals or Families that are looking to save money with their health insurance plan might consider an HDHP. Young, healthy families with no major medical needs may be best suited for this type of plan. An HDHP typically requires a higher deductible and lower premiums, meaning families who don’t anticipate needing to make frequent visits to the doctor or take expensive medications can benefit from these plans. That said, it’s important to ensure that there is enough financial protection in place if unexpected medical issues arise.
Who Should Consider an Low Deductible Health Plan (LDHP)?
Low Deductible Health Plans (LDHPs) may be a better fit for individuals or families who are planning to pay more in premiums each month in exchange for lower deductibles and copays. For example, someone with a chronic condition or pre-existing illness may benefit from an LDHP, as they could face significantly higher costs if they need to meet the high deductible of an HDHP. It’s also important to consider whether your primary care provider is within your plan’s network, since out-of-network care can be expensive. In short, it’s worth considering all of your options before choosing a plan.
Things to Consider When Deciding Between HDHP and LDHP
When deciding between High-Deductible Health Plans (HDHPs) and Low-Deductible Health Plans (LDHPs), it’s important to consider:
- The cost of premiums and deductibles
- Whether your primary care provider is within your plan's network
- Your anticipated medical needs
- Your ability to afford the deductible before coverage kicks in
- Any additional services offered by the plan, such as preventive care or dental/vision coverage
When comparing health plans, it is important to look at more than just the premiums and deductibles. Other factors, such as copayment amounts, coinsurance rates and out of pocket maximums should all be taken into account when choosing a plan. Additionally, plan options that cover preventive care services such as doctor visits or vaccinations can save money in the long run by helping to avoid costly medical bills down the road. By carefully evaluating all of these factors, individuals can make an informed decision based on their healthcare needs and budget.
Costs to compare from insurance plan to plan include:
- Copays: A copayment, or copay, is a fixed amount an individual pays for medical services, such as a doctor's visit or prescription drugs. The copayment is typically required at the time of service and is paid directly to the provider. Copays are usually lower than the full cost of the service, so they can significantly reduce out-of-pocket costs for patients
- Coinsurance: the ratio of a patient's out-of-pocket costs (after deductibles have been met) for healthcare services compared to their total healthcare costs. The coinsurance amount can differ based on type of service and health plan. For example, a health plan may pay 80% of the covered expenses and require the patient to pay the other 20%, or coinsurance rate.
- Out-of-pocket Maximum: the most you would pay for healthcare services in a year. Once that amount has been met, your health insurance plan pays for all covered services for the remainder of the benefit year. Out-of-pocket maximums are set amounts each year and can help protect against high medical expenses if you need extensive care during the year.
- Employer Contribution: Employer contributions to health insurance can count towards an employee's Health Savings Account (HSA). Employer contributions are additional dollars that the employer puts into the HSA on behalf of the employee. These funds can be used for eligible medical expenses and are tax-free when used for that purpose. The amount of employer contributions that count towards an employee's HSA depends on the terms of the health plan, which will stipulate how much must come from employee payroll deductions in order for employer contributions to apply.
Frequently Asked Questions
Is a HDHP with HSA worth it?
A HDHP with HSA can be a great option for someone looking to minimize healthcare costs. HDHPs have lower premiums than traditional plans and the funds saved in an HSA can help cover out-of-pocket expenses that arise. Additionally, any funds deposited into the HSA are tax-free when used for eligible medical expenses, providing an added benefit of savings. While a HDHP with HSA may not be worth it for everyone, it is certainly worth considering if you’re looking for ways to save on healthcare costs.
What Are The Other Ways to Manage Costs with HDHP Other Than HSA?
Other than an HSA, there are other ways for managing costs associated with a high deductible health plan. These include buying supplemental insurance, looking into generic drugs, comparison shopping for medical goods and services, and talking to your doctor about the lowest cost options while not compromising on quality. Additionally, some companies offer programs or discounts that may help lower costs when accessing healthcare goods and services.
Is it better to have a lower deductible or lower premium?
Deciding between a lower deductible or lower premium depends on your individual healthcare needs and financial situation. A lower deductible plan means you will have to pay more in premiums, but have less out-of-pocket medical costs when you need care. On the other hand, a lower premium plan will save money each month but could require large out-of-pocket costs if you need care. Ultimately, it is important to consider what kind of healthcare services you are likely to use in a year and compare that with how much you are willing to pay in monthly premiums versus potential out-of-pocket expenses.
Is it better to have a lower deductible or lower out-of-pocket maximum?
There’s not a clear-cut answer to that. Whether it is better to have a lower deductible or lower out-of-pocket maximum generally depends on the type of medical services you expect to need in a given year. A plan with a low deductible, for example, may be more beneficial if you know you will need numerous expensive treatments, as this will keep your out-of-pocket expenses down. On the other hand, having a lower out-of-pocket maximum can protect you from unexpected medical costs that could arise throughout the year. Ultimately, it is important to consider both factors carefully before making a decision and choose the plan that best fits your individual healthcare needs.
Why does having a higher deductible lower your premium?
Having a high deductible on your health insurance plan typically lowers your monthly premium payments, as health insurers tend to charge more for plans with lower deductibles. This is because plans with higher deductibles require the policyholder to pay a greater amount out-of-pocket before their insurer will cover any healthcare costs. Thus, the insurer can offer a lower premium in exchange for individuals taking on more of the risk associated with unexpected medical expenses.
What does 100% covered after deductible mean?
When something is “100% covered after deductible,” it means that health insurance will cover the entire cost of a healthcare service, as long as the policyholder has already met their deductible for the benefit year. This typically applies to all in-network services and some out-of-network services. However, depending on the plan and insurer, there may be additional copays or coinsurance costs that still apply.
Which comes first, deductible or copay?
The deductible typically comes first. A deductible is the fixed amount that you must pay out of pocket before your health insurance will begin to cover costs associated with a service. Your copayment comes after the deductible has been met, and it’s a fixed cost that you need to pay at each visit.
What happens when you meet your deductible but not out-of-pocket?
If you meet your deductible but not your out-of-pocket maximum, then you’ll still be responsible for some of the costs associated with a healthcare service. Depending on your plan, you may be responsible for all or part of the costs above the deductible. Your insurance will typically cover some of the cost - usually a percentage - but not all, so it’s important to check with your insurer to understand what you’re ultimately responsible for paying.
Get Health Insurance Quotes Through FirstQuoteHealth
The decision between choosing a low or high deductible health insurance plan can be difficult, as both offer different advantages and disadvantages. Low deductible plans have higher premiums, but often pay for more of your medical costs. High deductible plans come with lower premiums, but require you to cover more of your healthcare spend upfront before your insurance kicks in. Ultimately, the right choice depends on your personal goals and budget. Consider all aspects when making this important decision, and don’t hesitate to contact your insurer if you need assistance understanding the details of a specific plan.
For those looking to compare health insurance plans, FirstQuoteHealth is an excellent resource. It provides you with easy access to a variety of plan options and allows you to get quotes from multiple insurers in one place. You’ll be able to search for plans based on your unique needs and budget and find the coverage that best fits your overall goals.