What Makes More Sense – High Insurance Premiums or a High Deductible?

It’s the ultimate insurance debate, just as timeless as the old adage about the chicken and the egg. And with many employers looking for ways to cut costs, it’s one you may be facing sooner rather than later: whether to increase your monthly health insurance premiums or to pay a higher deductible.

Last month, I had to make this choice with my employer: Go with a free HMO, or go with a $1,000 deductible PPO plan. I hate the hassle of HMOs and I’m a pretty healthy person, so you can guess what I did. It helped that my biweekly contributions to my old plan totaled nearly $1,500 (for an HMO!), so I treated it like I was saving money AND getting a better product.

From other I spoke to about it, those who initially lean toward higher insurance premiums are usually looking to save money in the long run, while those who originally gravitate to the higher deductible plans are looking to put more money in their pockets right now. But such a simple approach to either situation is short-sighted.

High Premium/Low Deductible Plans

A 2011 study by the Kaiser Family Foundation found American families are increasingly paying more and more out of pocket for their health care costs – a whopping $15,073 for a family health insurance plan. By comparison, you could buy a brand new 2012 version of my Hyundai Elantra for the same price.

However, it’s unlikely you’ll pay that full amount. With most employer-sponsored health care plans, your company pays a hefty dose of the premiums. The Bureau of Labor Statistics reports that in 2008, private sector companies paid as much as 71 percent of family health insurance premiums; public sector employers ponied up even more – up to 73 percent.

Low Premium/High Deductible Plans

More and more employers are switching to health care plans with lower premiums and higher deductibles as a way to reduce the company’s financial burden. Termed “consumer-driven” health insurance plans, businesses including Wells Fargo, General Electric, and American Express have all forced workers to switch to a high deductible plan or, at the very least, choose between one of two high deductible options.

While a high deductible plan and its subsequent lower premiums can put more money in your pocket, as well as your employer’s pocket, right now, it isn’t always the best choice. That Kaiser Family Foundation study determined that the average deductible on these consumer-driven plans was nearly double that of traditional health insurance. On top of that, plans with a high deductible often come with a higher out-of-pocket max as well, sometimes as high as $10,000 a year for a family insurance plan.

Which Is Right For You?

Deciding between a high premium and a high deductible plan is a lot like gambling. On one hand, if you’re young, healthy, and single, a high deductible plan may make sense; after all, what are the chances that you’ll wind up in the hospital for an extended stay or require major surgery? On the other hand, a plan with higher premiums – and a lower deductible – may be better suited for a woman of child-bearing age, who will most likely max out her deductible during the course of a pregnancy.

But, just as with any gamble, you can’t necessarily predict the outcome. It’s always hard to plan for the unexpected, but if you put your savings into something like Aurora Bank and only use it during emergencies, we can take our best guess and learn from our mistakes.

Readershas your employer forced you to choose between high premium and high deductible plans? What was your choice – and why?

8 Responses to What Makes More Sense – High Insurance Premiums or a High Deductible?

  1. Michelle says:

    I’ve never been forced to choose. However I also get free insurance at my work.

    If I had to choose, I would choose a high deductible because I’m never sick.

  2. Money Beagle says:

    We went with the highest premium plan for the years we knew we were having medical expenses, one year being surgery for my son and the next year being the birth of our daughter. This year we have no planned high cost expenses, so we went with one that is sort of middle of the road. The premiums aren’t cheap but they’re about $30 per paycheck cheaper, but the out-of-pocket percentage is higher. It’s always a crap shoot.

  3. J Ascher says:

    Until this year, I had a high premium insurance plan at work, but it was eliminated.

    I chose it over the deductible plan so I would have top-notch care without a lot of out-of-pocket expenses. This was really helpful when I had surgery three (3) years ago – I only paid a couple of hundred dollars.

    I’m still doing well on the deductible plan because I have to pay $400 before benefits kick in for non-routine care.

  4. Money Infant says:

    I’ve always chosen the high deductible plan because everyone in my family has always been healthy. Of course that doesn’t mean we will always stay that way, but so far it has worked out well for us.

    Now we are living in Thailand where I can get full coverage for the entire family for less than my 27% share of my employer sponsored health care back in the US. Same level of care, ~75% cheaper here. Why?

    • J Ascher says:

      @Money Infant, I’d say US costs are higher because insurance companies have a captive market with employer-sponsored plans. They can charge higher rates and, because they’re usually for-profit firms, the stockholders are always looking for a higher ROI. Executive wage inflation in the corporate sector plays a large role too. The US also has high R&D costs that factor into medical care here.

    • Dr Dean says:

      @Money Infant, Do those Thailand Docs pay 6 figures in malpractice insurance like OB docs here? I’m just wondering?

      • Money Infant says:

        @Dr Dean, No they certainly do not. Lawsuits are relatively unheard of here so there is little need for malpractice insurance. I wonder now if they even have such a thing. I’ll ask my wife, she is a nurse and a Thai citizen and should know better than I.

      • Money Infant says:

        @Dr Dean, So my wife says yeah they do have malpractice insurance here, but it is not very expensive for the doctors because hardly anyone ever sues. She said if you sue it could take “forever” and then proceeded to tell me about a case that was just settled that took 15 years.