Keep a close eye on your health care spending.
No matter what type of insurance you are talking about, there is an inverse relationship between the deductible level and the monthly premiums. You can see this relationship in your car insurance policy, and you can see it when you shop for health insurance as well. If you are willing to accept a higher deductible, you can save money on your premiums. Whether this is a good idea depends on a number of factors, including your health, your expected health care costs and your overall financial situation.
Compare Costs
Before you can tell if raising your deductible is a good idea, you must first determine how much you can save. Contact your insurance broker and price policies with several different deductible levels. Calculate how much you will save over the course of a year by taking out a policy with a higher deductible. Once you have that information, you can determine whether the cost savings are worthwhile. If raising your deductible from $1,500 to $10,000 only saves you a $200 a month, it might not be worth the risk. But if you can drop your premium from $600 to $100 a month with a high deductible policy, it might be worth your while to do so.
Health Savings Accounts
If the high deductible plan you are considering is eligible for a health savings account, you can prepare for potentially higher costs while earning a tax deduction. The money you put into an HSA is deductible when you do your taxes, and that can lower your tax liability while helping you pay for health care costs. Over time, you can build up an HSA equal to, or greater than, the increased deductible. That allows you to mitigate your risks and pocket the savings from your lower monthly premiums. Not all health plans are eligible for an HSA, so ask your broker if your plan qualifies.
Track Your Costs
When deciding whether it makes sense to raise your deductible, it is helpful to understand how much you have been spending on health care services. Health care spending is notoriously unpredictable, but you can make some assumptions about future spending based on what you have spent in the past several years. Gather all the explanation of benefits forms you can find, and add up all of the costs of your health care. Include both what the insurance paid and what you paid out of pocket. If your health care spending each year is high, it might make sense to stay with your low deductible plan. However, if you spend little on doctor visits and other services, taking out a higher deductible plan with lower premiums is probably the right choice.
Cah Flow Considerations
A high deductible plan works best for consumers who have a good handle on their cash flow, and the ability to funnel their premium savings into a special account for health care spending. The best way to do that is with a health savings account, but if that option is not available, you can use a traditional savings or a money market account to put money aside. For a higher deductible to make sense, you must have cash available to pay those costs when they arise.
Tags: care spending, deductible plan, health care, higher deductible, your deductible
