Low Deductible Health Insurance Plans
The health care insurance industry is complicated enough as it is, but the folks who design these things love throwing in an extra complication or two over the base model. One of these complications involves asking potential customers of these policies to make a choice between a low and high deductible option.
Needless to say, the decision you make will have a big impact on your budget. If you don't understand exactly how this works or are not sure about what the implications are, this article will explain the differences between common plan structures and help you decide which option is right for you and your family.
What are Low Deductible Plans?
Let's say you have some sort of an illness which happens to be covered under your health care policy. One would generally assume that having a health insurance policy would protect you against a significant financial burden resulting from that illness.
As it turns out, the insurance company will not pay the entire amount required for the treatment of that illness. You will have to pay an initial portion of the cost out of your pocket. This amount is called the deductible. It can be anywhere from under $100 to well over $1500 depending on your insurance plan and the circumstances of your condition and required treatment.
For those who have an adequate amount of cash reserves and savings set aside, this might not be more than a minor inconvenience. For other individuals and families where money may be a little tighter, having to come out of pocket for a significant amount of cash can be a stressful and difficult scenario. A low deductible plan is simply a policy that offers a lower deductible amount than other policies offering similar coverage in exchange for a higher monthly premium.
Why Do Providers Charge a Deductible?
When an insurance company pays on your behalf, there are two things it needs to consider; the actual amount of the claim, plus any processing fees involved in handling the claim. In addition, they recognize that often times what appears to be a serious medical emergency will end up being resolved for less than $1,000. By forcing the consumer to pay a deductible, the company guarantees that it only has exposure and risk when a serious medical situation arises.
Due to the fact that the majority of office visits and treatment plans involve a relatively small amount of money; the coverage provider shifts that burden to the consumer. Keep in mind that insurance companies are businesses whose goal is to make money, not simply provide consumer protection as they would like you to believe.
Which Type of Plan is Best?
Unfortunately, one size never fits all. As a consumer, you need to evaluate both your personal financial position along with your history of needing medical care. If you have a history of illness, tend to require frequent doctor visits, or don't have much in the way of savings; you will want to seek out a low deductible health plan to protect yourself financially.
Do be aware that this type of coverage typically involves higher monthly premiums so the insurance company can offset the increased risk of claims. As a general rule, it usually makes sense to select the highest deductible option you can reasonably afford. That way you minimize your monthly premiums and in most cases will end up saving money over the long term. Not only will you get the benefits of a lower annual premium, you will also get better offers on co-payment and co-insurance plans.
The Co-Insurance Factor and Out-of-Pocket Limits
Regardless of whether you go with a high or low deductible option, you will still end up paying a part of the total due when you visit the doctor. In a typical low deductible plan, there will still be some form of co-insurance. This means that you will have to pay a certain percentage of the total cost, even after the deductible has been met. The most common splits tend to be around 80/20 or 70/30 in percentage terms. An 80/20 plan means that your insurance company will pay 80% of the total bill after the deductible has been met and you will be responsible for the remaining balance.
Most providers cap this with a certain out-of-pocket maximum for the year. These out-of-pocket maximums can vary by plan so it is important to know exactly what this limit will be for any health insurance coverage you are considering. That way, you know ahead of time what the upper limit of what you theoretically could be responsible for in any given year if you or a family member were to need a significant amount of care. There is a huge difference between a plan with an out-of-pocket maximum of $2,000 for the year and one with a $10,000 maximum!
If you think that you would be better off using a more comprehensive insurance option, you should aim for a lower deductible plan. In most cases, these have the tremendous advantage of providing for a far wider range of medical coverage. This is particularly applicable in the case of people who might have known health issues, or anticipate such health problems based on family medical history.
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Making Your Decision
There are few areas in life where knowing yourself and having the ability to honestly evaluate your own personal situation are more important. Making the best possible decision requires carefully matching your personal needs with the features and benefits of a policy that fits your lifestyle.
If your health insurance needs do not tend to be complicated or extraordinarily expensive and you are relatively healthy, you will usually save money in the long run by selecting a high deductible policy. Your monthly premium will be lower and these saving can quickly add up to a large sum of money.
On the other hand, if you feel more secure taking a, "no matter what happens, I want to be covered" approach, choose the low deductible policy knowing that it will come with a higher monthly premium. Always take into consideration factors such as annual out-of-pocket limits and other key elements that can impact the final cost of your overall coverage in addition to the deductible assigned to the plan.
Not Perfect for Everyone
Keep in mind that there is not a single solution that fits everyone equally. What works well for a friend or family member might not work well for you at all. It is important to know your own personal medical history, your current financial position, and your outlook for the future in order to make the best possible choice.
The best advice I can offer is this: research your options as much as possible. Request detailed health insurance rate quotes from several different providers so you can compare your choices side-by-side before making a commitment.
There are plenty of free resources online that will allow you to get free quotes and help to make the information gathering process easier. Unfortunately, there are no shortcuts and you do still have to read the details of each policy you are considering. Take the time to carefully evaluate how well it fits your lifestyle, finances, and risk tolerance.
Speak to your employer, your agent, primary care physician, and your service provider to ask questions and get thorough answers before you decide to commit to any individual health insurance plan. Don't be afraid to use your doctor as a resource. You might be surprised at just how much insight her or she can offer into which providers are the best for specific medical conditions and situations. By doing your homework and taking the time to ask questions now, you will put yourself and your family on a path to reliable coverage and financial peace of mind.
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