Your insurance plan can have a huge impact on your finances.
Apart from the monthly insurance premiums, you will have to pay, there are other expenses which include copays, coinsurance, and deductibles. A lot of people do not really understand how this works and could get overwhelmed by the intricacies of the different insurance options before them. So, in most cases, people just look at the premiums and if it is something they can afford, they simply go for it.
Typically, plans with low deductibles have high premiums while those with high deductibles have low premiums.
But what exactly are deductibles?
Deductibles represent the fixed amount an insured person must pay every year before his insurance provider will begin covering healthcare costs. So basically, the first medical expenses at the beginning of the year are covered by the individual not the insurance company. Although for some people who are super healthy, they may not even get to exhaust this sum before the end of the year. This means that the insurance company wouldn’t need to pay anything at all throughout the year.
It should be noted that deductibles are different from copays and coinsurance. Copays are usually what you pay for emergency room visits, prescriptions, and special visits while coinsurance is the small part of the coverage you pay on each medical bill. All of these make up your out of pocket maximum.
See this illustration: Let’s say two men both aged 26 buy an insurance plan in December 2019. The plan could cost $1,700 in deductibles and $700 in premiums. The first man gets injured while playing football in February and injures his arm which costs him $300 dollars to treat. In April, he breaks gets a knee injury requiring minor surgery which brings when taken with other hospital bills makes a sum of $2,000. He would only pay $1,400 of the amount while the bulk of the remaining $600 is paid by the insurance company.
For the other man, he may only be admitted for a couple of days for a case or the flu which may cost only $250. He might not get any other cause to go to the hospital for treatment for the remainder of the year. That implies that the insurance company wouldn’t pay money on behalf of the second man who even as he continues to pay his premiums.
Some would argue that this is unfair and that deductibles should be removed from insurance policies altogether. But insurance companies carry a lot of risks and this is one of the tools which they employ to reduce the risks and stay afloat in business.
Healthcare plans come in different packages. Typically, there is the bronze, silver, gold, and platinum. The bronze plan usually has the highest deductibles and the lowest premiums while the platinum plan has the lowest deductibles but features the highest premiums. A person who buys a bronze plan in Texas for example would pay around $1,900 in deductibles and $600 in monthly premiums while another individual with a gold plan would pay around $550 in deductibles and $1,800 in monthly premiums.
How do I know what suits me?
Choosing a plan with a low or high deductible depends on a number of things – your income, health status, or health history. If you’re an average healthy person with no foreseeable need to visit the clinic, then having a plan with high deductibles seems ideal. As long as you are capable of paying the first set of hospital bills in a year, you should be fine.
However, if you have a chronic condition or you are pregnant you should consider buying a low-deductible plan. These circumstances would warrant you seeing a doctor frequently or buying expensive drugs. Another reason to get a low-deductible plan is if you’re a sportsperson. Generally, activities that require a lot of physical exertions come with a lot of risks. Therefore if you or your kids are into sports, having a low-deductible insurance plan will be the wiser choice.
Another thing to know is that a high deductible plan would enable you to open a Health Savings Account (HAS). In 2020, a high deductible plan is one in which the deductible is at least $1,400 for a single person and $2,800 for a family. An HSA account has its own benefits. Firstly, there are tax exemptions attached to it which increases the amount of money available for you to pay hospital bills. It comes with a debit card that can be used to pay for out of pocket expenses including deductibles. It also earns interests which could be invested in mutual funds or stocks.
Lots of Americans usually go for healthcare plans that having high deductibles and low premiums. In fact statistics show that over 70% of Americans are under this category of health insurance. And many employers offer these plans to their employees, most of who just sign up for it without assessing the compatibility of these plans with their peculiar situations.
For insurers, this is quite advantageous because the fact that people are primarily responsible for their medical expenses pushes them to seek out cheaper medical care. But sometimes, this means not getting adequate medical care when necessary. Lack of adequate health insurance could also lead to delays in getting treatment for serious illnesses which is detrimental to the individual in the long run.
A lot of people will place the price of premiums on top of the list when choosing to get a healthcare policy. But in fact, the premium rate is not the only thing to look at when getting an insurance plan. If you take out a couple of minutes to go through your policy and do some calculations, you might just discover that getting a ‘cheap’ plan isn’t the best for you.
Getting healthcare involves two very important things – health care and finance. Therefore getting the right plan should be your topmost priority. And it is certainly not something to be done hurriedly.