Key health insurance terms in this article:
- Deductible: A deductible is the amount of money you have to pay before the insurance company will share in the cost of expenses.
- Co-insurance: The percentage of costs you share with the insurance company after the deductible is met (ex: 60%/ 40%)
- Max out-of-pocket: The total amount you will pay in healthcare expenses for the year, including deductibles and coinsurance.
When faced with purchasing health insurance, the number of plans available can be overwhelming. Comparing 15-20 different plans can be confusing and it can be hard to understand which features are the most important.
One of these features, the deductible, is especially important because it will determine how much you spend on healthcare yearly.
There are many different deductibles to choose from, so which is best for you?
What is a deductible?
A deductible is the amount of money you have to pay before the insurance company will share in the cost of expenses. Plans have many different options, ranging from $2,000 to $9,100 in 2023.
On the marketplace, ACA plans have three levels of coverage: bronze, silver, and gold. Generally, the higher deductible, the cheaper the plan. Typically, bronze plans are the cheapest option because they have the highest deductible and gold plans have the lowest deductible but can come with a steep price tag.
Paying attention to the deductible is important because you can budget for how much money you have to spend on healthcare. It can also help you understand the value of a plan.
Many people think that a lower deductible plan is better than a high deductible, but that may not be the case.
Here are some reasons to consider before investing in a health insurance plan.
You won’t reach the deductible each year
Generally, higher deductible plans are the most affordable. If you are relatively healthy and do not use your insurance a lot, it could be worth considering a high-deductible plan because you won’t use the full deductible before the year is up.
Saving money for medical expenses is important
Expenses that go toward the deductible include things like prescriptions, doctor visits, routine testing, and elective surgeries. Until it is reached the insurance won’t cover these services at 100%, so the money you save on a high deductible plan can be put toward these costs.
While most plans are built like this, there are exceptions, so it is important to consider that when enrolling in a plan. Checking the drug formulary, prior authorizations, and network of doctors can ensure you are not left with a big bill and paying more than you should.
Consider healthcare utilization
Lower deductible plans may be a good option for those who have higher healthcare utilization. If you are going to the doctor frequently throughout the month, having a lower deductible can be beneficial, because you will reach it faster, and then the insurance can begin to cover a percentage of your costs, and you will pay a percentage called co-insurance. In contrast, if you had a higher deductible, you could have higher healthcare costs throughout the year.
On the other hand, if you do not frequent the doctor, you opting for a higher deductible plan could be right for you because the most you need to use the plan each year could be for a routine doctor’s visit, urgent care visit, or in the case of an emergency.
Consider max out of pocket
On many plans, the max out-of-pocket is higher than the deductible. This is something to take into consideration because it reflects the amount you will have to pay in total, including coinsurance and your deductible, before insurance will cover anything at 100%.
While looking at the deductible amount is a good strategy, you may notice that most ACA plans on the marketplace, even with lower deductibles, have the same max out-of-pocket.
In 2023 it is $9,100 for an individual and $18,200 for a family. Even if your deductible is $7,000 for example, you still will have to pay $9,100 before the insurance company will cover expenses at 100%.
Remember the purpose of health insurance
Health insurance is meant to be used in the case of a catastrophic event, paying for day-to-day expenses and elective procedures. While not everything is covered on health insurance until you reach your deductible, having insurance helps to lower your out-of-pocket cost.
Instead of paying the full medical bill, you are only paying a portion as stated by your deductible. And without insurance, you could be put into financial hardship because you now have to come up with the full cost of medical bills. Also, whether you choose a lower deductible or a lower deductible, the maximum out-of-pocket will remain the same, so it may not make sense to spend the extra money just to have a lower deductible.