Open Enrollment: Have You Thought about a High Deductible Plan?

For many, it’s open enrollment time. Whether you work for “the man” or work for yourself, this is the time of year that insurance companies allow you to evaluate your plan — and change your coverage. If your health insurance company is offering open enrollment right now, it’s a perfect time to consider high deductible health plans.

When you raise your deductible, you reduce your monthly premiums, and have the chance to save quite a bit of money.

Advantages to a High Deductible Plan

One of the biggest advantages to the high deductible plan is that you have lower monthly premiums. With a high deductible, you are expected to pay more out of pocket for your health care. As a result, you pay lower premiums since the health insurance company isn’t expected to pick up as much of the bill. If you are experiencing a monthly cash flow squeeze, a lower premium can really help free up some of your money.

Another advantage is access to a Health Savings Account (HSA). The HSA is a special savings account that allows you to save up money for health care expenses. The money grows in an account and comes with tax advantages. Your contributions to your HSA are tax-deductible, and the money in the account grows tax-free — as long as you use the money for qualified health care expenses.

With a HSA, you have the ability to get more benefit from your own health care dollars. Switching to a high deductible plan can really help you save money, improve your cash flow, and prepare for the future.

Downsides to Paying a Higher Deductible

There are, of course, downsides to paying a higher deductible. Even though you pay less in monthly premiums, you still have to pay more up front for your health care. So, you might pay a higher amount when you see the doctor, or pick up a prescription. Plus, if you have a major health concern, you will have to pay a larger portion of the cost before your health insurance kicks in. If you have a deductible of $5,000, this means that you will have to pay $5,000 for your own costs (except preventative care) before the health insurance kicks in.

If you plan to use a high deductible health care plan, it is vital that you have enough money to cover the deductible. Build up your emergency fund to cover it, or make sure that you put the savings from your monthly premiums into your HSA to ensure that you are ready in the event of an emergency.

Note that families and individuals with regular health care visits or chronic conditions may not be best suited for a high deductible plan. These plans work best for those who are in pretty good health, and who have few health care needs. If you make a lot of visits to the doctor, or have a large number of prescriptions, you might spend more each year because of the deductible.

Bottom Line

In some cases, a high deductible plan can financially benefit you. You can reduce your monthly health insurance costs, as well as receive a tax deduction if you pair your high deductible plan with a Health Savings Account. Run the numbers, though, and make sure that a high deductible plan is really the best course for your situation.