For many people, it’s open enrollment time for health insurance. This is a time when you review your health plan, and decide whether or not you need to make changes.
My husband’s plan is up for review right now (this is the first time we’ve gone through open enrollment with an employer; it’s exciting), and we’re making sure that a high-deductible plan still makes sense for us.
We’re pretty sure that we’ll stick with the high-deductible plan we signed up for when my husband began working for his current employer because we do well with these types of plans. But, even though a high-deductible plan can save you money on premiums each month, it doesn’t mean that it’s automatically the right choice for you.
What You Should Know About High-Deductible Plans
When you get a high-deductible plan, you agree to pay more out of pocket for your expenses. Each member of my family gets one preventative visit each year with a health care provider, but after that, we have to pay the entire cost of any visits, until we meet the deductible. We also have to pay out of pocket for our prescriptions until the deductible is met.
When you have a lot of health care needs, a high-deductible plan can be problematic. Someone with a chronic condition, or if you have a large family and trips to the emergency room are common, a high-deductible plan can cost you more than it saves you. You might save on the monthly premiums, but your out of pocket costs can quickly balloon out of control.
Rather than looking just at the monthly premium, look at what it might cost you overall. When I ran the numbers before we switched to a high-deductible plan several years ago, here is what I did:
- Look back at health care needs for the previous years: I looked back at what we spent on health care for three years, to get an idea of what’s “average” for us. I discovered that, other than annual checkups, our family sees providers maybe three to five times a year. We have some regular prescriptions, but nothing outrageous.
- Compare what you pay out of pocket under both plans: Next, I looked at out of pocket costs. We never meet our deductible. This is a pretty good indication that a high-deductible plan is right, since it means we don’t use a lot of health care services. However, if you routinely hit your deductible, it might be an indication that you have a lot of needs, and spending.
- Add up total yearly costs: Add up what you would pay out of pocket for your “average” health care needs and then add that to your annual premium costs. In my case, my health care needs are few and my premium is low because of the high-deductible. So, even though I might pay $2,000 in out of pocket costs, my total premium for the year is $2,400, so my total costs are $4,400. With a different plan, I might not pay that out of pocket cost, but I’d have a monthly premium of $400 a month instead of $200, so I’d pay $4,800 for the year. It’s cheaper for me to get the high-deductible plan. However, if I had higher costs, and I paid $3,500 out of pocket, then at that point I’d be better off ditching the high-deductible plan and getting a plan with a higher premium, but that covered my costs better.
Don’t forget to consider your emergency savings. We use our high-deductible plan in conjunction with a Health Savings Account, and we also have a good emergency savings account. If we do need more money for an unexpected cost, we have enough to cover our deductible for the year, and any co-pay. It’s important to be prepared for the unexpected, even when you have a health insurance plan.
No one plan will be right for everyone. A high-deductible plan has worked well for my family, but there are only three of us, and we have few health care needs and no chronic conditions. As a result, we can handle the out of pocket expenses that come with a high-deductible plan, and we can put the savings in a Health Savings Account. If you have a different situation, though, you might need a different approach.