When I was self-employed, I bought my family’s insurance through the Affordable Care Act’s Health Insurance Marketplace. I didn’t qualify for any subsidies, so I was facing payments of about $1,000 a month.
But when I compared plans, I found one that would drop our costs to just $500 a month. It had a high deductible, but my husband and I were healthy and rarely needed a doctor’s care, so I enrolled us in that plan.
Of course, that’s when I had a medical emergency. I had a huge deductible and had to spend thousands before my insurance covered anything. I quickly exhausted my savings and ended up with medical debt. It was a costly error on my part, but it’s one I’ll never make again.
If you want to cut down your expenses like I did, a high-deductible health plan is much cheaper and might seem like a smart option. But what is a high-deductible health plan? Choosing one can be an expensive mistake if you’re not careful.
How deductibles work
Health insurance is an essential safeguard against medical emergencies — but it’s expensive. According to the Kaiser Family Foundation, the average annual premium for a single person’s health insurance is $6,690.
With any health plan you choose, a deductible will be listed. A deductible is what you have to pay each year toward your medical care before your insurance coverage kicks in.
The monthly premium you pay each month doesn’t count toward your deductible. Only money you pay for medical services, such as visiting a specialist, goes toward the deductible.
If you want a lower monthly payment, plans with a higher deductible are cheaper. Although you’ll pay less each month, you’ll pay more out of your own pocket if you need medical care.
For example, this bronze plan has a $6,650 deductible and a monthly premium of almost $268. If you developed a major medical issue, you’d be responsible for the deductible; if your treatment cost $7,000, you’d pay $6,650 and your insurer would pay just $350.
Health insurance plans with a lower deductible — such as $0 — have a high monthly premium. You’ll pay more each month, but if you need expensive medical care, you’ll pay less out of pocket.
As a contrast to the plan mentioned above, this platinum plan has a $0 deductible and a monthly premium of $818. If the insured person had the same medical treatment that cost $7,000, they wouldn’t pay anything. Instead, the insurer would pay the full amount.
What is a high-deductible health plan?
The term “high-deductible health plan” is often used to described any plan that has a relatively expensive deductible, but it’s more complicated than that. A true high-deductible health plan (HDHP) adheres to established federal guidelines.
As of 2017, the minimum annual deductible for an HDHP is $1,300 for a single person and $2,600 for family coverage. However, HDHP deductibles can be much higher.
Under an HDHP, by law, the insurance company must cover the cost of preventative care — such as an annual exam — before you pay the deductible. But for all other services, such as medical treatments and specialist visits, you’ll cover the cost yourself.
If you’re used to paying just $20 for each doctor appointment, covering the full cost can be a big shock.
What to consider before enrolling in a high-deductible health plan
An HDHP isn’t always a poor choice. For some, it can be a smart way to get insurance without breaking the bank. If you fit the following criteria, an HDHP might be for you:
- You’re young: The older you are, the more likely you are to develop health issues. If you’re in your 20s or early 30s, you’re probably less likely to need regular medical care.
- You’re healthy: If you’re healthy and don’t have ongoing health issues such as diabetes or asthma, you likely only visit a doctor for preventative care and routine visits. In that case, an HDHP could be sufficient.
- You have an emergency fund: If you have an emergency fund and can cover the price of your deductible without going into debt, an HDHP can be a cost-effective choice.
However, choosing an HDHP is still risky. As I found out, young and healthy people don’t always stay that way. If you have an ongoing medical condition, need regular care, or take prescription medicines, an HDHP might not be a good choice.
Also, keep in mind that a lower-deductible plan might be cheaper than you think. If you shop through the Health Insurance Marketplace, you could qualify for health subsidies that help offset your insurance costs. Federal financial assistance is available to those who make 400 percent of the poverty level or less.
To calculate whether an HDHP makes sense for you and to find out if you qualify for financial assistance, you can compare your estimated costs for different plans on Healthcare.gov.
Enrolling in a health insurance plan
Choosing the wrong health insurance can be a costly mistake. But now that you have an understanding of what a high-deductible health plan is and how they work, you can make an informed decision and save money.
For more information on choosing a plan, check out this guide on insurance policies available through Healthcare.gov.
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