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Definition of a Low Deductible Health Plan

Health insurance is a financial product where the insured party pays a fee called a premium in exchange for the guarantee that the insurance provider will pay for various expenses related to health care such as doctor's office visits, emergency room visits and surgery. A deductible is an upfront cost that you must pay before an insurance company will pay for certain expenses. Deductibles can vary greatly from one health insurance plan to another.

  1. Low Deductible Insurance Plan Basics

    • A low deductible health insurance plan is simply a plan with relatively low deductibles. There is no precise definition as to what constitutes a low deductible; one person might consider $250 to be a low deductible while another person might consider $500 to be a low deductible. High deductible health insurance plans (HDHPs) do, however, have a fixed definition. According to the U.S. Internal Revenue Service, in 2011, HDHPs are plans that have deductibles of $1,200 or more for single coverage and $2,400 or more for group coverage. Any health plan with deductibles below these thresholds may be considered a low deductible health plan.

    Benefits of Low Deductible Plans

    • The main benefit of low deductible health insurance plans is that if you happen to use health care, you will face low out-of-pocket costs. For instance, if your plan has a $500 deductible and you use $3,000 worth of care during the year, your insurance company will cover $2,500 of the total expenses, while if you had a HDHP with a deductible of $2,000, the insurance company would only cover $1,000 of your expenses.

    Drawbacks of Low Deductible Plans

    • One drawback of health insurance plans with low deductibles is that they tend to cost more than plans with higher deductibles. When you accept a high deductible, you accept more risk, so insurance companies are willing to offer lower premiums. Another drawback of low deductible plans is that you cannot set up a health savings account (HSA.). An HSA is a special savings account that is offered to those who have HDHPs in which the account holder can set aside income on a tax-advantaged basis to spend on future health expenses.

    Considerations

    • Deductibles may vary depending on the type of care you receive and the provider you choose. For instance, some health insurance plans have networks of providers that are cheap to use, but you may face higher deductibles if you use providers outside of the network.

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