We spend a lot of time talking about how you can save money by raising the deductible on your health insurance plan. In case you're still skeptical, I'm going to go over some real numbers that I got through an online quote engine so we can see how a higher deductible health plan works in action.
First, let's look at what a health insurance policy costs for a 40 year old female in Utah. Prices may obviously vary based on your age, gender, or location, but the basic concepts I'm going to go over should be the same. I found a policy with a $1,000 deductible, 20% coinsurance after the deductible, and a $2,500 annual out-of-pocket max. This plan is fairly typical, and it costs about $210/month in this case. That's a total of $2,520/year.
Now let's see how things change if we move up to a $5,000 deductible plan from the same carrier. This plan has no copays, no coinsurance, and a $5,000 annual out-of-pocket max. The cost is $100/month, or $1,200/year. The reason the premium is so much lower is because you are "self-insuring" between the $2,500 out-of-pocket max of the low-deductible plan and the $5,000 out-of-pocket-max with the high-deductible plan.
Let's look at how these two different scenarios play out based on your medical expenses for the year:
|Total annual medical expenses||Total cost with $1,000 deductible plan||Total cost with $5,000 deductible plan||Savings with high deductible|
As you can see, the low-deductible plan is better if you spend more than $2,650/year at the doctor and the high-deductible plan is better if you spend less than that. I realize that people see the high numbers and panic which is why low-deductible plans are so popular, but the thing to keep in mind here is that the high-deductible plan never costs more that $1,880 above the low-deductible plan.
Another thing to remember is that even if you do have a major injury or prolonged illness for a year or two, the cost of that will be easily balanced out by all the years where you don't have any major problems. Let's say you average $500/year on normal medical expenses but once in your first five years you get in a major accident and it costs $10,000 in hospital bills. Do you know how much money you would save with the higher deductible? $4,100. That's a whole lot of money. Obviously the savings are even higher if you don't get in the accident.
As I mentioned above, these numbers will be different for everyone, but raising your deductible is pretty much always a good idea unless someone else is paying your premium (why turn down free money?). If you want to read more about why self-insuring works, check out our previous post about raising deductibles on group plans.