High Deductible Vs Low Deductible – How to Choose?

Note: If you need definitions of health insurance related terms, simply click “Free PA Quotes” at the end of this article.

The average consumer tends to assume that low deductible health plans (LDHP) are more benefit rich then their high deductible (HDHP) counterpart. You may be surprised to find that in most cases, both forms of health coverage are equally comprehensive. It is important to consider your individual situation to determine what is ultimately best for you. Knowing the relative strengths and weaknesses of each type of plan will put you in optimum position to maximize savings.

Since becoming a licensed agent, I have worked with a large array of prospective customers who, for a lack of better words, love their health plan. That is aside from just one thing – the cost. Usually, the story goes something like this:

“I love my health plan; there is no deductible, I only pay $10 to see the doctor, my labs don’t cost me anything, if I go into the emergency room it only costs me $50, and if I go into the hospital – I only pay $200. If I only have one issue, it is a bit expensive at $850 a month.”

The reason why some consumers have a virtual love affair with their health plan (in spite of the cost) is they feel that their health plan is in some form, the envy of those around them. This is little more then a false perception about one plan being better then another.

The reason why this perception exists is that HDHP’s tend to receive the bulk of consumer complaints. Are the complaints justified? Let’s look a little bit closer…

Usually, the HDHP story goes something like this; “The other day, my son fell off the swing. We were concerned that he broke his arm and decided to take him to the emergency room. As it turns out, it was little more then a deep bruise. Unfortunately, we just got the bill in the mail and we had to fork out $250. Do you believe that, what’s the point in having insurance if I still have to pay so much money? I didn’t know a bruise could be so expensive.

In another case, we might hear of a friend who has to pay $1500 dollars for an MRI – OUCH! But it gets worse. In the event that they have to use their insurance again, they still would have to pay $1000 out of pocket before reaching their annual deductible. To add insult to injury, even after they reach their high deductible, they still have to pay 20% coinsurance for who knows how long…and on and on it goes…

When the proud owner of a low deductible health plan hears of such horror stories, they wipe their brow and with a sigh, write another $850 check for this month’s premium.

But does the seemingly enviable low deductible policy holder have cause to feel the way they do? When you take a closer look (keeping a calculator handy) you may find that enviable friend of yours…should be envying you.

While there are many variables to consider for any health policy, let’s get out a calculator out and compare a couple of policies:

Policy 1 (Low Deductible Health Plan – LDHP):

Monthly Premium: $850

Doctor copays: $20

Deductible: $0

Coinsurance: $0

Maximum Out of Pocket (OOP):$0

Yearly Cost (excluding copays):

$10,200

Policy 2 (High Deductible Health Plan – HDHP):

Monthly Premium: $450

Doctor copays (pre-deductible): $20

Deductible: $2500

Coinsurance: 20%

Maximum OOP (including deductible): $5000

Yearly Cost (excluding copays) if full deductible is reached:

$7900

Savings on Policy 2:

$2300 (potentially more if deductible is not reached)

So, which plan would you choose – does the LDHP still look like a viable option to you?

While policy one’s $0 deductible looks attractive at first glance in comparison to policy two – how does it work out in the end when you account for the overall increased cost of the first policy?

There is no question, from a strict dollar for dollar standpoint, policy two certainly seems to be the better choice.

But let’s play devil’s advocate and switch gears again. In the above comparison we are reviewing perhaps the most important variables that determine the cost of a policy. However, they are not the be-all end-all of shopping health insurance. When you account for the tendencies of human nature, it’s possible that a HDHP (like policy two) can actually pose higher risks to the consumer. How is this, you say? For one thing, many high deductible policy holders tend to put off minor pains and ailments to avoid the out of pocket deductible costs. This potentially lends itself to some conditions becoming worse that might have been resolved if treated earlier. Also, for some consumers who are less “savings conscience” they may find that their lack of discipline puts them in a compromising situation in the event that they have to incur unexpected deductible costs.

And yet, there are still other variables to consider. Whether it’s a HDHP or a LDHP, some plans may cap certain forms of treatment. This is an important consideration, and you may want to evaluate your health history to see how this might potentially affect you in the future. Also, max. OOP does not necessarily mean that this is all you will be paying once that level is reached. Most plans have copays for hospital stays and other services, even after the max OOP has been reached. With high copays, the costs can quickly add up. While some copays look attractive pre-deductible, they are just an extra expense – post-deductible.

Consider speaking with a state licensed agent who will consider these variables when helping you shop for health insurance.

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