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High or Low Deductible Health Insurance: Which One is the Best

Team AckoMay 13, 2024

Navigating health insurance can be daunting, especially when faced with technical terms like deductibles. High and low-deductible plans offer different approaches, but which is right for you? Let's break it down. High deductible plans typically come with lower premiums, making them appealing for those seeking to save on monthly costs.

However, they require you to pay more out-of-pocket before coverage kicks in. On the other hand, low deductible plans involve higher premiums but lower upfront costs when accessing care. The choice depends on your financial situation, health needs, and risk tolerance. Understanding the nuances can help you make an informed decision tailored to your circumstances.

First, let’s get a clear picture of the role of deductibles in health insurance.

Contents

What are deductibles in health insurance?
Differences Between Deductible, Co-Pay, and Co-Insurance in Health Insurance
What is a high deductible health insurance policy?
Is a high-deductible plan good?
How does a high deductible policy work?
Merits and demerits of high deductible health insurance
What is a health savings account?
What is low deductible health insurance?
How does low deductible health insurance work?
Merits and demerits of low deductible health insurance plans
The Relationship Between Deductibles and Insurance Premiums: Understanding the Cost Dynamics
Should I choose a high or low deductible health insurance plan?
Exploring the Benefits: How Deductibles Enhance Health Insurance Plans
Examining the Drawbacks: Understanding the Limitations of Deductibles in Health Insurance
What should you choose?
Factors Impacting Deductible Amount in Health Insurance Policy
Frequently asked questions

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.

Differences Between Deductible, Co-Pay, and Co-Insurance in Health Insurance

Understanding deductibles, co-payments, and co-insurance is essential in navigating health insurance plans. The deductible requires the insured to pay a fixed amount before the insurer covers the rest. Co-payment involves the insured paying a set percentage or sum of medical expenses during each claim.

Co-insurance is similar to co-payment but is calculated after deductibles are paid, with the insured paying a percentage of treatment costs. These features dictate how much the insured contributes to medical expenses, impacting both out-of-pocket costs and overall coverage provided by the insurance plan.

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.

Is a high-deductible plan good?

High-deductible health insurance plans (HDHPs) offer several benefits despite their higher deductibles. While you may pay more out of pocket before insurance kicks in, you can enjoy lower premiums, which is particularly advantageous if you remain healthy and rarely meet your deductible or out-of-pocket limit. Many HDHPs cover preventive care like annual check-ups, immunisations, and screenings, often without requiring you to meet the deductible first.

Family plans may include coverage for well-child visits annually. Moreover, HDHPs come with Health Savings Accounts (HSAs), which allow you to save tax-free for qualified medical expenses. Contributing to an HSA not only helps manage healthcare costs but also reduces your taxable income, providing additional financial benefits.

For individuals and families who can manage higher deductibles and prioritise preventive care, HDHPs with HSAs can offer valuable cost-saving opportunities and tax advantages.

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.

Merits	Demerits
Your insurer’s risk reduces, hence, the premium is relatively low. Therefore, you can choose a higher sum insured to meet the expensive treatment costs.	If the deductible is high, you might incur high out-of-pocket expenses during claim settlement.
If you select a high sum insured, the coverage features become pretty inclusive. You can, thus, enjoy wider coverage benefits under the policy.	You will be unable to trigger the claim under the policy unless you cross the deductible. As such, the policy would prove ineffective for small claims.

What is a health savings account?

A Health Savings Account (HSA) is a tax-advantaged savings tool for qualified medical expenses, covering items like weight-loss programs, dental care, and long-term care. Contributions are tax-deductible, while interest grows tax-free, and withdrawals for eligible medical expenses are tax-free.

At age 65, withdrawals for any reason incur only income tax, potentially serving as backup retirement income. However, not all high-deductible plans offer HSAs, so verifying with your plan administrator is essential.

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.

Merits	Demerits
Since the deductible is low, your out-of-pocket expenses on medical costs will reduce.	The premium payable is higher, as your insurer’s risk increases.
The probability of claim settlement increases since low deductible plans come in handy for small claims too.	If you don’t make frequent claims, the higher premium proves to be an added expense.

The Relationship Between Deductibles and Insurance Premiums: Understanding the Cost Dynamics

Premiums and deductibles inversely affect each other, requiring a balance between them. Opting for a low premium entails a higher deductible and vice versa, distributing risk between the insured individual and the policy provider. Also, deciding between plan types allows for potential cost savings. Moreover, considering health risks alongside budgeting preferences is crucial.

Prioritising a low monthly budget may favour a higher deductible to lower premium payments, with the option to save in a health savings account. Conversely, paying slightly more monthly for a lower premium can mitigate the impact of unexpected major expenses. Personal circumstances and plan members should be carefully assessed before choosing a plan.

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.

Exploring the Benefits: How Deductibles Enhance Health Insurance Plans

Increasing voluntary deductibles assists in reducing medical insurance premiums and may prompt insurance companies to provide discounts. This strategy also discourages frequent small claims, enabling the insured to accumulate a No Claim Bonus (NCB). Leveraging the NCB can enhance the coverage of the primary health policy. By opting for voluntary deductibles, policyholders actively engage in managing their healthcare costs while potentially gaining financial benefits through reduced premiums and increased coverage.

Examining the Drawbacks: Understanding the Limitations of Deductibles in Health Insurance

Under a deductible-based insurance plan, the insured must cover medical expenses upfront before accessing benefits, potentially burdening those with limited resources. With a higher deductible, individuals face greater out-of-pocket costs, diminishing their savings. The financial strain escalates during multiple medical emergencies, amplifying the burden.

While deductibles lower premiums, they heighten the immediate financial responsibility for healthcare expenses. This arrangement can pose challenges, especially for individuals lacking sufficient savings or facing unforeseen medical needs. Consequently, striking a balance between deductible amounts and financial preparedness becomes crucial to mitigate the risk of overwhelming expenses while maintaining manageable premium payments.

Evaluating personal financial capabilities alongside potential healthcare needs is essential for informed decision-making regarding deductible levels within insurance plans.

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.

Factors Impacting Deductible Amount in Health Insurance Policy

Calculating the health insurance deductible involves considering various factors. Present health conditions, past medical history, and pre-existing diseases play significant roles in determining the appropriate deductible amount. Lifestyle choices such as smoking or tobacco use also impact this calculation. When deciding on deductible amounts within their health insurance plans, understanding these factors is essential.

By evaluating personal health status, medical history, and lifestyle habits, individuals can make informed decisions to ensure adequate coverage while managing out-of-pocket costs effectively.

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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