Should You Buy a High-Deductible Health Insurance Policy?

Given how expensive health insurance can be (especially for those without the luxury of an employer-sponsored plan), finding ways to get by on a cheaper policy makes a lot of sense. High-deductible health insurance policies are a great way to keep healthcare expenses down, but they're not for everyone.

What is a high-deductible health insurance policy?

A high-deductible health plan has a deductible (the amount you'll pay for covered healthcare expenses before your insurance kicks in) of at least $1,300 per year if it's an individual policy, or $2,600 for a family policy. Total yearly out-of-pocket expenses for these plans can't exceed $6,550 for individual policies or $13,100 for family policies.

The good news about high-deductible plans is that monthly premiums are typically much lower than they are for health insurance policies with standard deductible levels. The bad news is that if you have a number of medical expenses in any given year, you'll have to shell out a lot of money before the policy starts paying out. Thus, high-deductible plans are best for healthy folks with few medical expenses in a typical year. Of course, if you simply can't afford a standard health insurance plan's high monthly premium, then a high-deductible policy may be your only option.

Look for HSA-enabled plans

Signing up for a high-deductible health insurance policy means you may be eligible for a health savings account, or HSA. However, not all high-deductible plans are HSA-enabled -- so check on HSA availability with the plan provider before signing up.

Health savings accounts can be a terrific deal, and they certainly make high-deductible health insurance easier to live with. The basic idea behind health savings accounts is to save the money you'd otherwise be spending on insurance premiums so that you can use it to pay for medical expenses that aren't covered by your insurance. An HSA is the only account with a triple tax advantage: You get a tax deduction on your contributions, the money inside the account is exempt from capital gains and dividend taxes, and (assuming you spend the funds on qualified medical expenses) your distributions from the account will also be tax-free.

If you don't have any medical expenses this year, no worries: The money can just keep on growing in your HSA until you do need it. And once you reach age 65, you can use the money in your HSA for anything without incurring penalties (though you'll pay income taxes on non-medical withdrawals).

While a health savings account can make a tremendous difference in how affordable your high-deductible policy will be, it won't do you a bit of good if you never put any money in the account. At a minimum, you'll want to keep enough in your HSA to cover one year's deductible -- that way, if you do have a medical crisis, you won't run short of funds. Keeping more than the minimum in your HSA can allow you to use the account as a sort of supplementary retirement account, so you'll get good use out of that money even if you never run up a single medical expense.

Check the network

High-deductible health insurance plans, like most health insurance policies, are typically either HMOs or PPOs. Both types of policies have provider networks: HMOs require you to only use healthcare providers within the network, while PPOs let you use out-of-network providers but usually make you pay more for doing so.

Whether your plan is an HMO or PPO, it's important to choose one with a network that includes your primary doctor and any other healthcare providers you're likely to need. Health insurance companies typically have a network search program on their websites; use this search (before you sign up for the plan) to confirm that its network has decent coverage in your area.

Other ways to cut your healthcare costs

Getting a high-deductible health insurance policy is a good start toward keeping your medical expenses low, but don't stop there. Before you choose a doctor's office, call around and compare their charges to those of other doctors offering the same services. You'd be surprised how much prices can vary, even between doctors in the same specialty and geographic area. Once you pick a doctor, be sure to bring up costs in any discussions regarding treatment options. For example, if your doctor recommends a particular drug, ask if it's available in a generic version -- and if not, ask if there are any alternative treatments that are.

Finally, basic healthcare services like annual checkups and many routine screenings are free, so make sure you take advantage of these services on a regular basis. They can help you catch any serious problems early, while they're still relatively easy (and relatively inexpensive) to treat.

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