What is a Health Insurance Deductible?
A health insurance deductible is the amount you pay before your insurance kicks in. For example, if you have a $1000 deductible, and you need a $1000 MRI procedure and a $2000 surgery, you will pay $1000 out-of-pocket for the MRI, and then $0 for the surgery.
How do deductibles impact your costs?
A health plan with a lower deductible generally carries a higher monthly payment, and vice versa.
If you prefer to pay a higher amount monthly for the security and predictability of low out-of-pocket expenses for high-cost medical care, you may want a low deductible in your healthcare plan. This can be a good option if you have a chronic health condition or high risk of sports injuries.
If you prefer a high one-time expense in the event you need high-cost medical care rather than a smaller monthly payment, a high deductible health plan may be the right choice for you. This can be a good option if you are younger and generally healthy, or if you have a health savings account (HSA), which you can use to pay your deductible with money that is not taxed as income. You may also have a health reimbursement account (HRA) through your employer that can pay your deductible, which can also make a high deductible health plan an advantageous choice.
High deductible health plans
A high deductible health plan is a plan with a higher deductible – the amount you must pay out-of-pocket before your insurance kicks in than a traditional health insurance plan. This definition is set by the IRS and includes any health plan with a deductible of at least $1,350 for an individual or $2,700 for a family.
With a high deductible plan, you usually make a lower monthly payment. If you have an HSA or certain kinds of HRA, you can use the funds from either of these to pay your out-of-pocket health care expenses free from federal taxes.
You can only qualify to get an HSA if you are enrolled in a high deductible health plan. Money you contribute to an HSA will roll over forever, so if you save money in an HSA while you're working, and don't use it for several years, or until you change employers or retire, it will still be there for you. If your employer also contributes to an HSA, you can potentially get the best of both worlds with the low monthly payment of a high deductible plan and freedom from high out-of-pocket expenses as they are covered by your employer's contribution.
Want to determine whether combining your HSA with a high deductible plan is a good option for you? An HSA might be a good choice If any of these are true:
- You have predictable healthcare expenses -- You can set aside money that will not be taxed as income to pay these expenses
- Your employer contributes to your HSA, and their contribution leaves a smaller out-of-pocket payment than the amount you would pay with a lower deductible health plan that did not use your HSA
- You want to save money now for health expenses when you are older, tax-free