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Should I Choose a High or Low Deductible Health Insurance Plan?

Sep 24, 2018 4 min read Rebecca Lake

Key Takeaways

  • Low deductibles are best when an illness or injury requires extended medical care.
  • High deductible plans offer more manageable premiums and access to HSAs.
  • HSAs offer a trio of tax benefits and can be a source of retirement income.


If you're enrolling in your employer's health insurance plan for the first time or updating your existing coverage, it pays to be prepared. One question you might have is whether it makes more sense to go with a high deductible or low deductible plan.

Like most benefits-related questions, there is no one-size-fits-all answer to that question; it just depends on your individual needs.
 


High deductible health plan basics

As the name suggests, a high deductible health plan carries a higher deductible, which must be met before your plan benefits kick in for anything beyond in-network preventive care services. As of 2018, a high deductible plan is any plan that has a deductible of $1,350 or more Opens in new window for individual coverage and $2,700 or more for family coverage.

High deductible plans typically have higher out-of-pocket maximum limits, but once you reach that limit each year (including what you pay for your deductible, co-payments, and coinsurance), the insurance pays 100% of the allowable amount for the rest of the calendar year. For 2018, the yearly out-of-pocket total can't exceed $6,650 for individual plans and $13,300 for family plans, excluding out-of-network services.

While you'll pay more for your deductible with one of these plans, you do get the benefit of a lower premium. That's a plus if you stay healthy and never need to meet your deductible or the maximum out-of-pocket limit.

The other big advantage of high deductible insurance is that qualified plans offer a Health Savings Account to help manage health care costs.


What's a Health Savings Account?

A Health Savings Account or HSA is a tax-advantaged account you can use to save for qualified medical expenses, including:

  • Weight-loss programs
  • Eye exams and eyeglasses
  • Dental treatments
  • Hearing aids
  • Nursing homes and long-term care

HSAs come with some great tax incentives to encourage you to save. Contributions are tax-deductible, and they grow tax-free. Withdrawals are also tax-free when they're used for eligible medical expenses.

Unlike Flexible Spending Accounts, HSAs aren't "use it or lose it." You can leave the money in your account until you need it for eligible medical expenses. Beginning at age 65, you can withdraw money from an HSA for any reason with no tax penalty. You'll just pay ordinary income tax on the withdrawal, making it a potential source of backup income in retirement if you stay in good health.

There's one thing you need to know about HSAs, however. Not every high deductible plan offers them so if you're in doubt, check with your plan administrator to see if it's an option.

 

Low deductible health plan basics

Low deductible health insurance plans carry a lower deductible, meaning that when you get sick, you pay less money up front before your plan starts paying. The trade-off is that you'll pay more for your monthly premium when you have low deductible coverage.

An obvious downside to these plans is that if you don't end up needing more extensive medical care, you'll have paid a higher monthly premium for nothing. The silver lining, however, is that low deductible plans make managing and predicting health care expenses easier if you develop a serious illness, are injured, or need surgery. There's no large out-of-pocket expense to worry about since the deductible is lower.

But, sacrificing a lower monthly premium to get a lower deductible also means giving up something else: a Health Savings Account.


High or low? Which is right for me?

The simplest way to decide whether a high or low deductible plan makes more sense is to consider your health situation.

If you're young and healthy, you may be less likely to need anything more than preventive care, in which case a high deductible plan could be the better fit. On the other hand, a lower deductible may be more appealing if you're older, have a chronic health condition, participate in high-risk sports or activities, are pregnant or plan to have a child at some point, or you require pricey prescriptions for a health issue.

It also helps to assess your savings and budget. Consider how easily you'd be able to meet a higher deductible if necessary. And if you have access to an HSA with a high deductible plan, ask yourself how much you'd be able to contribute each year. (Note: Similar to other tax-advantaged accounts, HSAs have annual contribution limits Opens in new window.)

With a low deductible plan, think about how much you can afford to pay for the monthly premium. Weigh that against the value of being able to have health care services covered when you need them without having to hand over a significant amount for the deductible.
 

What you can do next

Review your health history to determine whether you'll need more than just preventive care for the upcoming year. Most importantly, reach out to your employer or your plan administrator to get answers to any questions you might have about the plans being offered.

 

Rebecca Lake has been covering finance, investing, and small business for nearly a decade. Her work has appeared online at U.S. News & World Report, MSN Money, Business Insider, and Investopedia.

 

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