Is High Deductible Health Insurance Healthy?

(Stacy Johnson) – Even as I did this story on the risks of high-deductible health plans, you should know that I’ve had one for years. And it works really well for me: my deductible is $5,000, which is an obvious drawback. But on the other side of the equation, I pay less than $300 a month for my health insurance: way, way less than I’d pay with a low deductible. Plus I can make tax deductible contributions to my Health Savings Account: a special account often combined with high-deductible policies. It’s basically like a healthcare IRA. You can put in a certain amount every year ($3,000 if you have single coverage, $5,950 for family coverage) and deduct the contribution. Plus, the account grows tax-free and distributions are tax-free too, as long they go to pay for qualified healthcare expenses.

So a high deductible policy combined with a Health Savings Account can be a very good thing. The insurance is affordable and the Health Savings Account gets me tax write-offs and helps me build healthy additional savings that I can use to meet that high deductible or pay out-of-pocket medical expenses. All in all, a great system for those of us who don’t visit doctors often and only really need catastrophic coverage. Here’s a place you can read more about Health Savings Accounts: http://taxes.about.com/od/deductionscredits/p/HSA.htm

But as this news story suggests, these types of accounts aren’t for everyone. So if you’re considering one, give it a thorough exam first.

High deductible policies may be unhealthy for at least three reasons: first, because you may not seek help. In a recent survey, Fidelity Investments recently found that nearly half the people who had one said they’d skipped medical care up to 4 times in the last year to avoid paying the out-of-pocket expenses.

Second potential drawback? There may be reasons other than the high deductible that make these policies cheap: they may have limited coverage. Some policies may have low caps on things like lifetime coverage, hospital costs, and even doctor visits. It’s super-important to compare policies, understand what’s in there and make sure coverage is adequate. And as with any type of health insurance, you also have to beware of high co-pays. If your policy requires that you pay 20% of hospital costs, that could cost you thousands.

And finally, these plans aren’t nearly as healthy low-income workers as they are for higher-income people for two reasons: first, if your deductible is $2,000 and you only make $20,000 a year, the deductible is 10% of your income, and you may have trouble putting that much money aside in a Health Savings Account. In addition, the tax benefits of these plans don’t matter as much to those in low brackets.

So if you’re thinking about a high-deductible health insurance policy, don’t focus on cost alone: be aware of potential problems. If you don’t feel confident in your ability to weigh the pros and cons, get some help, like from an independent insurance agent. There’s also plenty of information at sites like insure.com (I site I trust where where you can learn about and shop for all kinds of insurance.)

And if you do decide to go down this road, here’s one more tip: when I go to the doctor, I tell them that while I do have insurance, I pay the first $5,000. I’ve found that revealing that I’m essentially self-insured for the first five grand makes for lighter bills.