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About High Deductible Insurance Plans

In insurance, a deductible is an upfront cost the insured party pays before the insurance company will compensate them for costs covered by an insurance plan. High-deductible health plans differ from other plans in a few key ways that can make them a good option for some individuals and families.

  1. Identification

    • High-deductible health plans are sometimes called catastrophic health plans, since high deductibles typically require the policy holder to pay for small procedures out of pocket. The minimum deductible that constitutes a high-deductible health plan is sometimes defined by eligibility for health savings accounts (HSAs.). Health savings accounts are a type of tax-advantaged savings account that people with high-deductible plans can commit money toward to pay for health expenses. According to the New York Times, a health plan must have a "deductible of at least $1,200 for an individual or $2,400 for a family" to quality for an HSA (as of August 2010.).

    Plan Costs

    • The cost of an insurance plan is called the premium. In general, the higher the deductible is on a health-care plan, the lower the premium. Therefore, choosing a high-deductible plan could potentially save you money. On the downside, your out-of-pocket expenses will be higher. Healthy individuals will be less likely than unhealthy people to receive care that requires paying the deductible.

    Benefits

    • High-deductible plans provide individuals with more health insurance options. Healthy people who do not plan to use health insurance often may prefer a high-deductible plan to reduce premiums and commit money to a health savings account. Money put into HSAs is committed before taxes and never incurs taxes so long as funds are spent on qualifying medical expenses. In addition, funds roll over each year and can earn interest.

    Considerations

    • While high-deductible plans and HSAs offer potential savings on premiums and taxes, there are some limitations on the advantages. For instance, the U.S. Treasury states that "you are not eligible for an HSA after you have enrolled in Medicare." If you have to have an expensive medical procedure, you may have to pay your full deductible, which could easily negate the benefits of the lower premiums.

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