Are High Deductible Health Plans A Smart Choice?

Is there a way to manage the risk of increasing your deductible to save money on your health insurance premiums?

When purchasing health insurance the first item everyone focuses on is the deductible. Should you choose a higher deductible to save money on your monthly insurance premium? Or is this too risky in the event of an unforeseen event? The real question is, can you have your cake and eat it too?

Let’s say you want choose a $10,000 deductible for the lower premium, but feel this can be a bit risky. What if something happens and you need a $16,000 procedure? You’re stuck coming up with $10,000, right? The good news is, not necessarily.

If you have health insurance, the insurance company has negotiated discounts with their network providers. (That’s what in-network means). This network discount brings the procedure’s price down, sometimes as much as 60%. That $16,000 bill could be reduced to $6,500. It’s still a nice chunk of change, but if you have an accident plan – and the care you need is accident related – the supplemental accident policy can put cash in your hand. That cash can be used to pay your deductible, your mortgage, or used any other way you see fit. An added plus is, the accident policy will still pay even if your health insurance paid the bill 100%.

So what should you do with the savings? Let’s say you saved $100 per month on your insurance premium by choosing a $7,000 deductible instead of a $5,000 deductible. Over two years you have saved $2400, which you can save to offset the higher deductible. After two years, you are ahead of the game. You can use the savings to pay for doctor visits and other health care, essentially giving you free health care. Of course you can’t save it and use it, but the end result is the same.

The biggest question about the savings is where to put it. There is a great answer to that; if you chose an HSA qualified plan, and open a Health Savings Account, you can put this savings into it tax-free. Withdrawals from the HSA for qualified medical expenses (anything from doctor visits to contact solution) can be made without paying taxes or penalties. That means if you had to pay the full $7,000 deductible, and you were in the 20% tax-bracket, you would save $1,400 on your taxes. Over the year’s time, this would effectively bring your deductible to $5,600 which is only $600 more than the lower deductible you didn’t chose.

Let’s not forget the supplemental accident policy; it can help cover the costs below the $7,000 deductible in the event of an accident, thus mitigating a major risk. Now you can really have your cake and eat it too.

You need a supplemental accident policy and an HSA for this to work, of course, but the good news is that qualified HSA plans cost less than a traditional PPO for the same risk, and accident policies are very cost effective insurance.

What do you think? Are accidents your biggest risk? How have you mitigated the possible risk you face?