A health insurance plan deductible is an established amount of money that an insured member must pay before the health insurance carrier is required to make benefit payments not associated with an office visit or prescription co-pay.
The purpose of a deductible is to manage premium costs by shifting the initial claims expense from the carrier to the insured member. An absolute rule of health insurance is as follows: the higher the deductible, the lower the price of health insurance coverage (premium) and inversely, the lower the deductible, the higher the price of health insurance coverage (premium).
The amount paid toward a deductible is typically combined with the amount of a policy’s coinsurance to determine the out-of-pocket maximum. Coinsurance is the amount of healthcare expenses above deductible that the insured member and the insurance company share at an established rate, such as 75% insurance carrier and 25% insured member. Other coinsurance arrangements can include 50%/50%, 70%/30%, 85%/15% or 90%/10%. The out-of-pocket maximum, a combination of deductible and coinsurance paid by the insured member, is the amount before the insurance carrier will pay 100% of health care claims.
It is important for today’s consumer to balance the deductible level with the amount of premium that the consumer can afford to pay. Consumers must evaluate how much risk or exposure they are willing to accept, which affects the premium cost. Consumers, with participation and advice of their health insurance broker, should evaluate several areas to determine the appropriate deductible level:
- If I incurred a significant medical expense, what amount would put me in financial harm’s way – $3,000, $8,000, $10,000?
- Do I have the financial resources, savings, investments, family, etc, to manage a large medical expense?
- What access to credit, such as credit cards or the ability to borrow, do I have to convert a short-term medical expense to a long-term debt?
Many times consumers want to lower their deductible to unreasonable levels believing that all significant medical bills must be settled immediately and in full. The consumer ends up paying a much higher premium to insure against a significant medical expense that likely will not occur. In fact, a large insurance company told Stateside that of all of their insured clients in Texas, 87% would not reach $2,000 in claims in any given year. This translates to almost a 9 out of 10 chance of not incurring $2,000 in claims in any given year. In fact, last year only 12% of all plans written by Stateside Insurance Services had a deductible lower than $2,500. Texas consumers are starting to understand this statistic and are moving to higher deductibles in order to pay lower premiums.
However, the movement to higher deductibles can go too far. Texas consumers are now regularly securing coverage at $3,500, $5,000, $7,500 or higher deductible levels without fully analyzing the cost-benefit relationship. For example, a 35-year-old male living in Dallas evaluates two policies. One policy has a $3,900 deductible, and the other policy has a $6,000 deductible. Both plans offer the same benefits except for the change in deductible. The $6,000 deductible plan is $365 per month compared to $408 per month for the $3,900 deductible. The Dallas consumer would save $516 in premium annually but at the same time would increase his exposure by $2,100. The cost-benefit analysis would indicate that the $516 annual premium savings is lost for any claim or series of claims in an amount of $4,416 or greater. Once $4,416 in claims were met, the individual would pay the next $1,584 to reach the $6,000 deductible of the other plan. The insured will pay $516 in additional premium to avoid the amount needed to meet the $6,000 of the higher deductible plan.
A simple analysis can be used to guide Texas consumers in selecting the health insurance plan that takes into account the deductible level, financial exposure and premium savings.
STATESIDE CAN HELP!
Stateside Insurance Services, since 2003, has focused on providing comprehensive health insurance information, responsive customer service and expert industry knowledge for Texas consumers. Stateside has annually been recognized by health insurance carriers and the Health Insurance Marketplace as a Top Producer in Texas.
Whether the health insurance policy is for an individual, family, small business or supplemental Medicare coverage, Stateside dedicates the time, and our deep industry expertise, to ensure our clients have identified the best health insurance plan for their specific needs.
Stateside is available to answer any general questions regarding your coverage options, can provide a subsidy determination, and even assist in creating and submitting online applications for ACA compliant plans during an Open Enrollment or throughout Special Enrollment periods.
By using the Telephone Appointment System, clients can take advantage of scheduling a health insurance discussion when convenient for their schedule. During Open Enrollment phone appointment availability is expanded to include extended hours and weekends.