A health insurance plan deductible is a predetermined amount of money that an insured member must pay before the health insurance carrier is required to make any benefit payments. The purpose of a deductible is to keep costs reasonable by shifting the initial claims expense from the carrier to the insured member. An absolute rule of health insurance is, 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. The out-of-pocket maximum, or cap, is the amount an insured member will incur before the insurance carrier will pay 100% of health care claims. A policy co-payment typically will not be credited towards deductible, but it can be credited to the plan’s coinsurance maximum. Monthly insurance premiums are not included in the out-of-pocket maximum.
Insured members with high deductible plans have greater financial exposure as compared to those with a lower deductible; however, the financial exposure can be offset by the reduced monthly premium expense. For example, a father, mother and two children living in Houston are evaluating health insurance coverage. The two plans that are being evaluated apply deductible per person up to a maximum of three persons per family. One plan has a $1,500 deductible and the second plan has a $2,500 deductible. All other benefits remain the same. The monthly premium for the plan with the $1,500 deductible is $412 and the plan with the $2,500 deductible is $326 per month. The annual premium difference between the two plans is $1,032. The family in this example would spend $1,032 more in premium per year, which is a guaranteed expense, to potentially reduce $1,000 in medical charges that would be applied to their deductible. Although the lower deductible plan provides lower financial exposure, the benefit is unknown as compared to premium savings which are real and absolute.
In case of a large claim or a series of claims that result in significant cost, the expense needs to be managed. Most health care providers are sensitive to the financial concerns of their clients. If an insured member is faced with a large claim(s), the discount available through the network contract between the carrier and the health care provider will result in a lower charge for services. The individual may also inquire about setting up a payment plan with very favorable terms, including minimal or no interest. Many nonprofit hospitals also have access to funds which may be used to provide financial assistance to patients. These three options may allow you to establish a workable financial arrangement in response to significant health care expenses.
There are advantages and disadvantages to plans with higher deductibles. The major advantages of plans with higher deductibles are that they lower health insurance cost by encouraging individuals to be more cost-conscious in their health care decisions. Higher deductible plans make health insurance premiums more affordable for individuals, which results in the opportunity for more individuals to be insured. There are also tax savings opportunities by pairing a federally regulated Health Savings Account (HSA) with a high deductible health plan (HDHP). Some arguments against plans with higher deductibles are that these types of plans can undermine the two basic purposes of health insurance: (1) to reduce financial barriers to needed care and (2) to protect against financial hardship.
If you are relatively healthy, a smart rule of thumb when buying a policy is to pick a high deductible plan to lower your monthly premium costs. If you experience minimal health care requirements that year, you will reduce your overall health care costs by reducing your premium expense. However, if you experience significant health care costs you will pay more for required services, although these services will be subject to the network contract discount. The additional costs will be mitigated by the reduced premium expense. As long as the deductible and out-of-pocket maximum are manageable you will be able to offset the potential financial exposure through monthly premium savings.
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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.
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