Is a low or high deductible better

High-Deductible Health Plans Pros and Cons

Pros

• Lower monthly premiums:Most high-deductible health plans come with lower monthly premiums. If you anticipate only needing preventive care, which is covered at 100% under most plans when you stay in-network, then the lower premiums that often come with an HDHP may help you save money in the long run.1
• Tax-free spending account:Some qualified high-deductible health plans may be paired with a Health Savings Account (HSA). You can use the funds in an HSA to help pay for eligible medical expenses. The money deposited into an HSA is tax-free, which can also help you save money.2

Cons

• Higher deductible:If your deductible is higher it means you are required to pay for your medical care out of pocket up to that amount before your health plan begins to help pay for covered costs. The exception is for preventive care, which is covered at 100% under most health plans when you stay in-network.1
• Costly out-of-pocket medical expenses:If you choose a high-deductible health plan and need non-preventive medical care, or costly medical care, you will have to pay all of your deductible before your plan begins to help you pay for covered costs. Depending on your medical needs, these costs could be significant out-of-pocket expenses that you may not have planned for.

When choosing between a high-deductible health plan and a more traditional one, consider your anticipated health needs. Are you likely to require medical care above and beyond preventive? If so, an HDHP plan with a lower monthly premium may not necessarily be an advantage—a more traditional plan with a higher premium and lower deductible might offer you improved cost savings.

How to Choose an Insurance Plan That’s Right for You

Consider the following when choosing a health plan:

• If you’re healthy and usually go to the doctor once a year, a lower monthly premium may be a good choice for you.
• If a chronic health condition means that you go often to your primary care provider (PCP) or specialists during the plan year, you must decide if savings from low premiums are greater than the cost of regular care or medication.

Carefully weighing the pros and cons of high-deductible health insurance may help you find the coverage that’s right for you. In addition to saving you money, finding the right plan for you can help ensure that you’ll receive coverage for the health care you need, when you need it.

What are deductibles in health insurance?

At the time of claim settlement, you need to bear a part of the claim amount. This amount is called a deductible. There are two types of deductibles in health insurance plans — Compulsory and voluntary. 

The former type is mandatory and is usually set at 10% of the claim amount. Say you make a claim for Rs. 1 lakh, then you need to pay Rs. 10,000 for the treatment and the insurer will bear the remaining amount.

Whereas the latter i.e. a voluntary deductible can be set by the policyholder while buying health insurance. Note that the amount of voluntary deductible can be changed. This is how you can get a health insurance plan with either a high deductible or a low deductible. Let us understand these concepts in detail in the following sections.

What is a high deductible health insurance policy?

The limit of deductible is set at a higher amount in this plan. Your insurance company will settle the claim only when the amount exceeds the limit of deductibles. And you must bear the cost of a medical event up to the pre-decided limit of deductible. The insurer will pay the excess amount.

How does a high deductible policy work?

When buying a high deductible health insurance plan, you choose the deductible amount and the sum insured. After that, if you raise a claim and its value is more than the selected deductible, the insurance provider will cover the excess. 

For example

Consider that you buy a health insurance policy with a sum insured of Rs. 5 lakhs and set the deductible at Rs. 1.5 lakhs. Say you raise a claim for Rs. 3 lakhs. In this case, you will bear the claim amount up to the deductible (Rs. 1.5 lakhs), and the insurance company will bear an excess amount (Rs. 1.5 lakhs)  as per the terms of the plan.

Note that the claim settlement amount is Rs. 1.5 lakhs.

Merits and demerits of high deductible health insurance

Now that you have understood what a high deductible health plan is and how it works, it is time to look at its pros and cons. So, here is a gist.

What is low deductible health insurance?

Low deductible health insurance plans have a low deductible, and once your claim crosses this limit, you will receive the excess. These plans work on a similar concept as high deductible, the only difference here is the low deductible threshold.

How does low deductible health insurance work?

Under a low deductible policy, you choose the sum insured and the deductible amount. So, if the claim amount is more than the deductible, the policy pays the excess.

To simplify things, consider the following example.

Consider that you buy a health insurance policy with a sum insured of Rs. 5 lakhs and set the deductible at Rs. 25,000. Say, you raise a claim for Rs. 3 lakhs. In this case, you will bear the claim amount up to the deductible (Rs. 25,000), and the insurance company will bear an excess amount (Rs. 2.75 lakhs) as per the terms of the plan.

Note that the claim settlement amount is Rs. 2.75 lakhs.

Merits and demerits of low deductible health insurance plans

Like high deductible health plans, low deductible ones also have their respective merits and demerits. These are as follows.

Should I choose a high or low deductible health insurance plan?

Now let us discuss the main topic in question — should I choose high or low deductible health insurance? Since both high and low deductible plans have their respective pros and cons, you must be wondering which policy to choose. Well, the choice boils down to two things.

1. Your coverage requirements

2. Affordability 

You can pick high deductible health plans if - 

• You are young and healthy and have a lower probability of seeking medical attention due to illnesses.

• You have an existing health insurance plan, either bought by yourself or an group health insurance. In such cases, the existing health cover can meet claims up to the deductible amount, and the high deductible policy would pay the higher claims.

• You are looking for a high coverage level without paying a very high premium for severe medical emergencies or critical illnesses.

• You can afford the out-of-pocket expenses or pay for the claim up to the high deductible.

On the contrary, a low deductible health plan proves suitable if -

• You expect frequent claims due to existing illnesses.

• There are planned treatments for which you would need coverage in the short term.

• You don’t want to incur high out-of-pocket expenses during claim settlement.

• You don’t mind paying higher premiums to ensure that you get covered with a lower deductible.

• You don’t have an existing health cover, or even if you have one, the sum insured level is limited.

What should you choose?

The choice of a high or low deductible plan depends entirely on your and your family’s health, medical needs, and affordability. So, assess your coverage needs, premium affordability, and the existing health insurance coverage you have and then make an informed choice.

Frequently asked questions

The following is a list of common questions you might have after reading the above article.

Is it better to have a high or low deductible for health insurance?

Both high and low deductible plans have their respective benefits and drawbacks. You should assess your coverage needs, affordability for premiums, and bear the out-of-pocket expenses. Then, select the right plan.

Is it worth buying a high deductible policy?

Yes, a high deductible policy can help you save on the premium costs and give comprehensive health insurance coverage. However, remember that the policy would mean high out-of-pocket expenses on claims up to the deductible amount.

Why should I choose a high deductible policy?

You can choose a high deductible policy if you don’t incur frequent claims or have another health insurance policy. A high deductible policy would enhance your coverage at a lower premium.

Is a high deductible policy cost-effective?

Yes, since the deductible is higher, the premium payable for the policy is low. As such, the policy is cost-effective. However, you should also consider the out-of-pocket expenses that you would incur on claims up to the deductible when assessing the cost-effectiveness of the policy.

What do deductibles mean in the context of health insurance?

A deductible is a part of the health insurance claim amount that you need to pay during claim settlement. The insurance company will bear the remaining claim amount.

Do all health plans have deductibles?

No, all health plans do not have deductibles. Regular health plans might have deductibles on specific coverage benefits. Top-up and super top-up plans do have deductibles, though.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet; and is subject to changes. Please go through the applicable policy wordings for updated ACKO-centric content and before making any insurance-related decisions.

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