You’ve narrowed down your health insurance plan options, and now it’s time to choose. Often, instinct tells us to go with the lowest premium (your monthly payment) – but is that really a good idea? When it comes to health coverage, picking a plan with a high deductible may actually be more expensive in the end.
The truth is, your premium and your deductible (what you pay before your plan pays) are more connected than you may expect. The pricing of one may impact that of the other. So, it’s important to know the differences between them and how they work together so you can choose the plan that’s best for you – and your wallet!
Premiums, deductibles, yearly maximums?
Brush up on common health insurance terms so you can have a better understanding of both your needs and your plan.
Does your premium go towards your deductible?
No, your premium does not go towards your deductible, and it doesn’t count for your out-of-pocket maximum, which is the most you’ll pay for care. But deductibles and premiums flow into one another. They have an inverse relationship. When one is more affordable, the other tends to be more expensive.
Why does having a higher deductible lower your insurance premiums?
A high-deductible health plan (HDHP) is an insurance plan with a low premium and a high deductible. But why would one affect the other? Think of it in terms of balance. A plan with both a high deductible and high premium would be too expensive for a payer. A plan with a low deductible and low premium would be too expensive for an insurance company. Making them opposites helps balance costs for both a payer and provider.
The benefits of a high deductible versus a low deductible medical plan
Typically, any health insurance plan with a deductible over $1,500 for an individual and $2,500 for a family is considered a high-deductible plan. But why would a plan with a high deductible be a good choice?
If you’re enrolled in a plan with a higher deductible, preventive care services (like annual checkups and screenings) are typically covered without you having to pay the deductible first. And a higher deductible also means you pay lower monthly costs. If you’re not receiving medical care often, that could save you a lot of money. Plus, some employer-sponsored health plans pair high-deductible plans with a Health Savings Account (HSA) that your employer may contribute to – and this account can be used toward your deductible.
On the flip side, a low-deductible plan is considered by many to be a good peace-of-mind option. While monthly payments may be more expensive, your deductible is lower, which can be more affordable if something unexpected happens. You’ll also pay less money before your plan starts paying.
Is it better to pay higher premiums or a higher deductible?
The truth is that there’s no one-size-fits-all answer to this question. Choosing the right plan depends on both your health needs and financial situation. Let’s take a look at some key factors that may help you select the plan that will work best for you.
Choosing a higher premium, lower deductible plan
A lower deductible plan is a great choice if you have unique medical concerns or chronic conditions that need frequent treatment. While this plan has a higher monthly premium, if you go to the doctor often or you’re at risk of a possible medical emergency, you have a more affordable deductible. This plan also works well for those who need prescription medication or who have family members in need of frequent care.
Choosing a lower premium, higher deductible plan
If you are generally healthy and don’t have pre-existing conditions, a plan with a higher deductible might be a better choice for you. Your monthly premium is lower, since you’re only visiting the doctor for annual checkups, and you’re not in need of frequent health care services. If you choose this type of plan, make sure your budget can cover your plan’s deductible out of pocket in case of an unexpected illness or emergency.
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