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.
Readers, has your employer forced you to choose between high premium and high deductible plans? What was your choice – and why?