High Deductible vs. Low Deductible

A low deductible is better than a higher one, right? That would be true if both plans cost the same. It’s also true if your employer is paying 100% of your premium. But what if you are paying your premium or a large percentage of the premium? A low deductible can be a false indicator of low out of pocket costs, because you also must consider the out of pocket maximum as the more important number.

Let’s compare the effect of a lower vs. higher deductible and out of pocket maximum for an individual plan for a 40 year old.

Plan 1, HSA Bronze

Deductible – $5200

Out of pocket max – $6400

Monthly/Annual Premium – $381/$4572

 

Plan 2, Silver

Deductible – $2000

Out of pocket max – $5000

Monthly/Annual Premium – $457/$5484

 

Plan 3, Gold

Deductible – $1500

Out of pocket max – $4500

Monthly/Annual Premium – $817/$9804

Plan 3 also has a doctor copays and a prescription card with copays.

 

Looking at benefits only, plan 3 is the best plan. If your employer is paying the premium, plan 3 is the way to go. But let’s assume you are paying the entire premium yourself. Let’s look at the worst case scenario in a given year. We will assume you meet your out of pocket maximum for the year. We will also take into account the tax savings for having an HSA account, and also paying your premiums pre-tax at a 25% marginal tax rate.

 

			HSA	Premium	Total
	Annual	Out of	Deductible	Pre-tax	Yearly Cost at
	Premium	Pocket Max	Savings	Savings	Out of pocket Max
Plan 1	$4572	$6400	$850	$1143	$8979
Plan 2	$5484	$5000	0	$1371	$9113
Plan 3	$9804	$4500	0	$2451	$11853

 

I’ve done these analyses many times for families with both low and high medical needs. The conclusion that I’ve reached is that over time, it’s just about always best to pay the lower premium with a higher out of pocket maximum. You simply can’t buy higher benefits and expect that the insurance company will pay your medical expenses at a net cost to you that is lower than the additional premium for the more generous coverage.

Bottom line: right now all ACA plans cover the same benefits, whether they are Bronze, Silver, Gold or Platinum. Take the HSA plan with the lowest premium and highest deductible.

At Dixon Advisory Group, we will help you analyze what plans will provide you with the lowest out of pocket cost over time, while providing you with the coverage you need. We specialize in group health insurance and individual health insurance in Tennessee.

Check out our website at www.grouphealthtn.com