For the first time ever, my husband and I have full benefits through his work. As we looked over our health insurance options, we discussed the premium/deductible tradeoff. We’ve had a high-deductible plan for years, mainly because that was the only way to keep health insurance costs reasonable when buying as an individual.
But, thanks to my husband’s awesome benefits package, we briefly considered choosing a plan with a higher premium, but a much, much lower deductible.
In the end, though, we decided that a high-deductible plan was still the best financial move for us, since we can save money on the premiums and put those savings in a Health Savings Account for further tax benefit, and future investment growth.
It looks as though we are not alone in our assessment of the situation.
The Premium/Deductible Tradeoff
A recently-conducted Bankrate.com poll indicates that more than 40 percent of Americans prefer the monthly savings of a high-deductible plan, while 36 percent want a lower deductible, even if it means a higher monthly payment.
When making your own decision about health insurance, it’s important to be aware of the premium/deductible tradeoff so you can make the choice best for your family.
When choosing a lower monthly premium, you’re expected to pay more out of pocket through a higher deductible. Our current plan requires our family to pay the first $2,500 (2014 requirements) of health care costs — other than the yearly preventative visits for each of us — out of pocket.
My husband’s recent doctor visit means we’re responsible for the entire $108 cost. After the deductible has been met, we’re only required to pay 20 percent of any health costs.
Monthly Savings vs. Out of Pocket Costs
We save money each month as a result of our high-deductible plan, though. Our monthly cash flow benefits from this arrangement. However, when we have prescriptions, or when we visit the doctor, we need to be prepared to pay the cost up-front.
On the other hand, if we were willing to pay a higher monthly premium, our out of pocket costs would be lower. That doctor’s visit of my husband’s would only require a $30 co-pay as the out of pocket expense. This would be a savings of $78. Of course, our higher monthly premium would have probably offset that savings quite quickly.
The real question you have to ask yourself is whether or not you need health care services often. If we needed to visit the doctor once or twice every month, or if one of us had a chronic condition (like diabetes), the story might be different.
Paying a higher monthly premium in order to lower out of pocket costs at the time of service would likely smooth our cash flow. However, since we have few health care needs, we benefit from contributing to our HSA, and then being able to call on the money when our higher out of pocket expenses are required. Plus, the money is ours indefinitely, so if it isn’t used, it goes toward our future prosperity.
As you engage in open enrollment, and consider your own health insurance options, think about the tradeoff you make when it comes to your premiums and deductibles.
Do you prefer to pay a higher deductible to save money each month? Or does having lower out of medical pocket costs work better for you?
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If you are healthy and young it doesn’t make sense to pay higher premiums for a low deductible. Don’t be scared of a high deductible. Open a health savings account and contribute the money you are saving on premiums. Within just a couple years you have enough saved up to cover the deductible. Since you are young, healthy, and responsible, you won’t use coverage for 5+ years. In that time all the savings on premiums have gone into your HSA, grown with the market tax-free, and now you have enough to safely cover years and years of deductibles, co-pays, and extra out-of-pocket expenses.
Prepare and save while you are young and healthy.
There’s a mathematical way to go about this, you don’t have to just guess or go with a feeling about which is better.
Look at your past year’s medical expenses and figure out how much they would cost under the plan you are thinking of switching to. That’s exactly what I did to decide we would switch to a high deductible plan for 2015.
Make a spreadsheet, it’s not too hard or time consuming and will give you actual numbers to base your decision off of. Even with my prescriptions and going to the doctor many times a year, we save $1300 with the high deductible plan.