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, let's go over some real numbers from an online quote engine so we can see how a high deductible health plan (HDHP) works in action.
Cost of a high deductible plan, example 1
First, let's look at what a health insurance policy costs for a 40 year old female in Utah. Prices may vary based on your age, gender, or location, but the basic concepts covered in this article should be the same. As an example, let's look at a policy with a $1,000 deductible, 20% coinsurance after the deductible, and a $2,500 annual out-of-pocket maximum. This is fairly typical, and it costs about $210/month which comes out to $2,520/year.
Cost of a high deductible plan, example 2
Now let's see how things change if we move up to a $5,000 deductible plan from the same carrier. This HDHP has no copays, no coinsurance, and a $5,000 annual out-of-pocket maximum and costs $100/month, or $1,200/year. The premium is lower because you are "self-insuring" the $2,500 difference between the $2500 out-of-pocket maximum of the low-deductible plan and the $5,000 out-of-pocket-maximum of the high-deductible health plan.
Let's look at how these two different plans compare 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 HDHP|
Comparing the two Plans
The low-deductible plan is better if you spend more than $2,650/year at the doctor and the HDHP is better if you spend less than that. Many people see the higher deductible and out-of-pocket maximums on HDHPs and panic which, is why low-deductible plans are so popular, but the thing to keep in mind here is that the total cost of this HDHP will never be more than $1,880 above the total cost of this 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 in 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 plan over that time frame? $4,100. That's a whole lot of money. Obviously, the savings are even higher if you don't get in the accident.
The benefit of raising your deductible
As mentioned above, these numbers will be different for everyone, but raising your deductible is a great way to mitigate rising premiums year-over-year. To help supplement out-of-pocket costs, HDHPs can be paired with healthcare "accounts" such as health savings accounts (HSAs) or health reimbursement arrangements (HRAs).
Supplementing a high deductible health plan
HDHPs are an ideal health insurance solution for many individuals. And employers looking to lower their health benefits budget may benefit as well. Despite it’s low monthly premium cost, the challenge an HDHP provides, as we examined above, is how expensive health care becomes when you finally need it.
PeopleKeep offers the ability for employers to further supplement their HDHPs for employees’ out-of-pocket expenses, tax-free using a group coverage HRA, or integrated HRA.