If you're looking to cut your health care insurance premium, one route is a high-deductible insurance plan. But the downside is this: If you become seriously ill, you'll realize why it's called a high-deductible plan.
For that reason, proponents like to call high-deductible plans "consumer-directed health care plans." No matter what you call it, here's how they work: In exchange for a relatively low annual premium, your insurance doesn't kick in until you've met your deductible — often $3,000 or more.
The low premium is the main appeal for high-deductible plans. "When you talk to consumers, they tend to gravitate to the plan with the lowest premium," says Doug Ghertner, president and CEO of Change Healthcare, a company focused on helping consumers shop for health care services. Currently, about 70% of employers offer high-deductible options.
When you do meet your deductible, you're still likely to have a co-pay or co-insurance for your medical needs. A co-pay is the fee you pay when you visit a doctor; co-insurance is the percentage of the total bill that you pay.
For many people, the low monthly premium is worth the high deductible. Andrew Van Til, a software developer for Dentons, a large, Chicago-based law firm, pays $221 a month to Blue Cross/Blue Shield of Illinois for his high-deductible plan. He's on the hook for $1,500 per person and $3,750 for the family before insurance kicks in. The deductible for out-of-network providers is twice that. After he meets his deductible, he's still on the hook for co-pays.
Still, he generally pays less than he would with the low-deductible plans his company offers, even with a family of five. "It's been very much a no-brainer," Van Til says. "Since we're relatively healthy, the deductible hasn't been much of a problem."
Until this year, that is, when Van Til hurt his ankle playing soccer. Physical therapy costs can add up quickly. But he still hasn't changed his mind about the plan. "We're very happy with it," he says.
High-deductible plans are typically yoked with a health savings account or flexible spending account, which allows you to save money on a tax-deferred basis for health care costs. While you're still paying real money out of pocket, the tax savings ease the pain a bit.
For example, suppose you're in the 25% federal income tax bracket. In order to pay a $100 doctor bill with after-tax money, you have to earn $133.33 before taxes. But with a flexible savings account, taxes don't take a bite out of your savings — in essence, giving your account a 25% boost.
Flexible spending accounts, typically, are use-it-or-lose it arrangements. If you don't spend all your money within the year, it goes away, back to your company. And spending down the account has become tougher in recent years: You can't buy a year's supply of aspirin the day before your account ends. You can, however, buy a pair of glasses or get dental work done.
The flip side to use-it-or-lose-it: For most flexible savings accounts, you could spend the entire amount the first day your plan begins, get fired the next day, and not have to keep paying into your plan or repay your expenses. (If you get fired before you spend the whole thing, however, you may have to forfeit the remaining money in the plan.)
Health savings plans can roll over balances from one year to the next, and your employer may also contribute to it.
Because you're paying for a big chunk of your health care expenses when you have a high-deductible plan, you have to become a smart shopper, says Robin Gelburd, president of FAIR Health, an organization that helps consumers shop for health services. "It does require a more proactive management of your health care benefit," she says.
For example, next year, several screening tests, such as colonoscopy, will be available to high-deductible plan participants at no charge because of the Affordable Healthcare Act. Should the doctor find something that needs to be looked at more carefully and diagnosed, however, those charges could well come out of your pocket. "You have to be aware that those charges could progress from screening to diagnostic," Gelburd says.
Accidents do happen, however, and if you have a high-deductible plan, those can be expensive — particularly if you have to be rushed to an out-of-network hospital. "It can be a huge pitfall," Gelburd says. One tip: Don't be afraid to challenge doctors on their fees, even after the fact. "Doctors are more receptive to the conversation," she says.
Both Gelburd and Ghertner run services that help consumers shop for health care coverage. "The thirst for this kind of information is real," Ghertner says. Consumers who use Change Healthcare's information platform, for example, can view videos and even play games on health care plan choices. FAIR Health lets you look up procedures and find out where the best values are.
For many people who like relatively uniform costs and dislike the possibility of big costs, then traditional health care plans are probably best. And that's particularly true if you have ongoing health issues.
If you're young and healthy and broke, a high-deductible insurance policy is probably a good idea, provided you're not a hang-glider. Similarly, if you're older and healthy and have a good savings cushion, a high-deductible option is a nice way to save on premiums.
In any event, if you have a high-deductible plan, you have to become a smart shopper for health care, which is why some people call these plans "consumer directed." You'll quickly learn the difference between generic and prescription drugs — as well as the cost of an emergency room — with a high-deductible plan. Nothing wrong with that, but remember that if you're headed to the hospital, you won't have much time for shopping.