Navigating Benefits

High-Deductible vs. Low-Deductible Health Insurance: The Pros and Cons

Posted by January 24, 2017

When you set up your health insurance plan, you can offer your employees a few different options, including the choice between a high-deductible and low-deductible plan. If you give employees this choice, they need to have a clear understanding of the pros and cons of high-deductible vs. low-deductible health insurance in order to choose the plan that best fits their needs. Here’s how you can help them make an educated decision.

The Differences Between High-Deductible vs. Low-Deductible Health Insurance

A deductible is the amount you have to pay each year for covered health care services before your insurance plan kicks in and covers costs. For example, if a health insurance plan has a $1,000 deductible, each year an employee would need to pay 100 percent of her health care costs up to the first $1,000 before her plan would cover any expenses. Once the deductible has been met, employees are still responsible for any copayments or coinsurance fees, but their insurance plan will pay the balance for covered services.

As the names suggest, high-deductible plans have a larger deductible than low-deductible plans. As of 2016, a high-deductible plan is one with a deductible of at least $1,300 for an individual and $2,600 for a family plan, according to Healthcare.gov. In exchange for this high up-front cost, high-deductible plans generally charge a lower monthly premium than low-deductible plans.

The Pros and Cons of Low-Deductible Plans

A low-deductible health insurance plan is more predictable. Employees pay their monthly premiums and don’t have to worry about a large out-of-pocket expense if they ever get sick or require medical care. This makes low-deductible plans a better choice for people with known health issues or older employees who are more likely to need health care.

The downside of a low-deductible plan is that the monthly premiums are higher. Employees pay this premium no matter what, and if they never need to take advantage of health care services, they don’t receive anything in return for those monthly payments.

The Pros and Cons of High-Deductible Plans

A high-deductible plan has a much lower premium, so employees will save money every month if they do not require medical care. At the same time, a high-deductible plan limits the amount an employee will have to spend on out-of-pocket expenses every year, so they won’t be on the hook for an unlimited bill.

High-deductible plans are often good options for younger employees who are healthy because they are less likely to need care. These plans can also make sense for older employees who are healthy, have savings and are willing to take a chance on higher out-of-pocket expenses should they need care.

The downside of the high-deductible plan is that the deductible can be a burden. It’s not easy to pay over $1,300 all at once. Also, the deductible isn’t the only out-of-pocket cost; the plan could have copayments and coinsurance fees on top of the deductible. In total, employees could end up paying thousands if they need expensive treatment.

There is also a risk that employees could choose to skip treatment because they cannot or do not want to pay the deductible. If they do this, their health will suffer and, if their condition gets worse, they may need even more expensive care in the future.

Educating Your Workforce

For your employees to make a smart decision about whether a high-deductible or low-deductible plan is right for them, they need to understand the full picture. They shouldn’t just choose a high-deductible plan solely because of the lower monthly premiums because if they end up needing medical care, they could get a nasty surprise when it comes time to pay the deductible. Be sure to explain the two types of plans fully and educate your employees on why one type of plan might be more suitable than another.

If employees sign up for a high-deductible plan, advise them that they should start saving money to prepare for future costs. To help employees with this goal, you can set up a flexible spending account (FSA) or a health savings account (HSA) to go with your high-deductible health insurance plan. These accounts let employees save for health care expenses, such as deductibles, using pretax dollars.

Offering employees a choice for their health insurance is a good thing, but only if they are equipped to make an informed decision. By presenting this information, you will teach your employees to use both high-deductible and low-deductible insurance plans effectively.

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