Which is right for you? High-Deductible vs Low-Deductible Health Insurance Plans.

 

Key Points

• Low deductibles are preferable when an illness or injury necessitates expensive medical care.
• High-deductible plans provide more affordable premiums and access to HSAs.
• Health savings accounts offer three tax advantages and can be a source of retirement income.
• If you are young and healthy and require minimal medical care, a high-deductible plan may be the best option for you. On the other side, a smaller deductible may be more enticing if you are older, have a chronic health condition, participate in high-risk sports or activities, are pregnant or expect to become pregnant in the future, or require expensive prescriptions.

 

It pays to be prepared whether enrolling in your employer's health insurance plan for the first time or updating your existing coverage. You may ask whether a high-deductible or low-deductible plan makes more sense.

 

As with the majority of concerns regarding benefits, there is no one-size-fits-all response to this inquiry; rather, it relies on your specific need.

 

Is a high deductible health plan good?

 

A high-deductible health plan, often known as an HDHP, is characterized by its higher deductible, which must be satisfied before the plan's benefits become active for anything other than preventative care services received within the provider network. Any health insurance policy with a deductible that is higher than $1,400 qualifies as a high-deductible plan. for individual coverage and at least $2,700 for family coverage, opens in a separate window.

Once you reach that limit each year (which includes what you pay for your deductible, copayments, and coinsurance), the insurance company pays one hundred percent of the allowable amount for the remainder of the calendar year. High-deductible plans typically have higher out-of-pocket maximum limits than other types of plans.

For the tax year 2022, the maximum annual out-of-pocket expenses for individual plans cannot exceed $7,050, and the maximum annual out-of-network expenses for family plans cannot exceed $14,100.

You will receive the benefit of a lower premium if you select one of these plans, despite the fact that your deductible will be higher if you do so. That is a benefit, provided you do not experience any health issues and do not ever need to reach either your deductible or the out-of-pocket maximum limit.

Another significant benefit of high-deductible health insurance is that eligible plans often include a health savings account (HSA), which can be used to better control the costs of medical care.

 

Low-deductible health plan basics

 

Plans with a low deductible have a lower out-of-pocket expense threshold, which means that if you become ill, you will be responsible for paying a less sum of money before your insurance company begins to pay. When you have coverage with a low deductible, you will be responsible for paying a higher monthly premium. This is the cost of doing business.

If you don't end up requiring more comprehensive medical care, you will have spent a higher monthly premium for nothing even if you purchased one of these plans, which is an obvious disadvantage. In the event that you become really ill, sustain an injury, or require surgical treatment, having health insurance with a low deductible will make it much simpler for you to prepare for and control your out-of-pocket medical costs. Because the deductible is so much less, you won't have to stress about paying a significant amount of money out of pocket.

However, if you want a smaller deductible, you will have to give up something else in exchange for a reduced monthly premium, and that something is a health savings account.

 

High Deductible vs Low Deductible? Which is right for me?

Taking into account your current state of health is the quickest and easiest way to determine whether or not a plan with a low or high deductible is the better financial choice.

If you are young and in good health, you may be less likely to require anything other than preventive care. If this describes your situation, a plan with a high deductible may be the better option for you. On the other hand, if you are older, if you have a chronic health condition, if you participate in high-risk sports or activities, if you are pregnant or if you plan to have a child at some point in the future, or if you require pricey prescriptions for a health issue, then a lower deductible may be more appealing.

It is also beneficial to evaluate both your savings and your budget. Think about how simple it would be for you to cover a larger deductible if that were necessary. Also, if your employer offers a high-deductible health insurance plan as a benefit to their employees, you should consider how much you would be able to contribute to your HSA each year.

The maximum amount that can be contributed to an HSA each year is capped at $3,650 for persons with self-only coverage and $7,300 for those with family coverage in 2021.

When considering a plan with a low deductible, you should consider how much you are able to spend on the monthly cost. Weigh this against the advantage of being able to get covered medical services when you need them without having to pay a considerable amount of money toward the deductible.

Below chart provides a comparable picture of high deductible and low deductible plan

	High-deductible health plan (HDHP)	Low-deductible health plan (LDHP)
Monthly premium	Lower than LDHP to account for increased financial risk	Higher than HDHP to account for reduced financial risk
Annual deductible	Individual: at least $1,400 Family: at least $2,800	Individual: less than $1,400 Family: less than $2,800
Out-of-pocket maximum limit	Individual: $7,050 Family: $14,100	N/A
Coinsurance	Depends on the plan, but typically higher than LDHP	Depends on the plan, but typically lower than HDHP
HSA-compatible?	Yes, as long as you have a qualified-HDHP, per IRS regulations	No
Integrated HRA compatible?	Yes	Yes
Individuals should consider if:	You’re young and healthy You expect to be a low user of your health plan (i.e. you only need routine care, generic prescription drugs, or preventive care) You want to open an HSA You can’t afford the premiums on an LDHP	You’re older or in poor health You expect to be a high user of your health plan (i.e. you have a serious medical condition or chronic illness) You want to limit your exposure to high medical bills
Employers should consider if:	Your employees are young and healthy You can’t afford the premiums on an LDHP You want to supplement your plan with an HSA or GCHRA	Your employees are older, have a chronic health condition, or have ongoing treatment You have a large health benefits budget You want to keep employee out-of-pocket costs as low as possible

 

The choice of the appropriate insurance plan constitutes both a tax and an investment strategy. Please let us know if there is any way we can assist you with the planning of your taxes.

 

Sure Financials and Tax Services LLC

Phone:+1.908.300.9193, Fax:+1.855.753.0066

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