CNBC: Here’s Why It’s Worth Checking the Deductible Before Buying Health Insurance
When it comes to shopping for health insurance, experts say more Americans need to look beyond just the monthly cost of a plan.
Almost a quarter of Americans say the monthly premium is the most important factor when they’re considering the cost of health insurance, according to a survey of nearly 2,200 U.S. adults Morning Consult performed in conjunction with CNBC Make It.
Meanwhile, only 8% of respondents say the biggest concern is a health plan’s deductible, which is the amount of money you’re on the hook to pay before your insurance coverage kicks in.
That’s not surprising, Jonathan Wiik, principal of health-care strategy at TransUnion Healthcare, tells CNBC Make It. But it is short-sighted, he adds, saying that taking the time to factor in how the deductible will affect your medical bills is “absolutely” worth it.
Why people don’t always consider the deductible
While the monthly costs, or the premiums, associated with a health-care plan are typically clearly spelled out, information on the deductible can be harder to parse. “There’s a benefit literacy issue in our country,” Wiik says.
People look at the premium and say, ‘Oh, that’s what will come out of my check.’ But they don’t read the fine print that the plan has a $6,000 deductible, he adds.
It may also come down to cost for some consumers. “The lower the premium, typically the higher the deductible,” says Kim Buckey, vice president of client services at DirectPath, an organization that guides employees to make better health care decisions. Some may take the chance that they’ll stay healthy and pay the lower monthly costs. But if something does go wrong, “that’s where you end up with a rude shock sometimes,” Buckey tells Make It.
The average deductible is $1,655 this year, according to the Kaiser Family Foundation. That means the typical American will need to pay up to that amount before their insurance starts to pay their bills. Of course if you don’t have any major medical needs, you may pay less. Obamacare plans can be even higher, with some options carrying average deductibles between $4,000 and $6,000, Wiik says.
Yet it’s hard to simply avoid buying a plan without a deductible. About 82% of those with health insurance have some kind of deductible as part of their plan, Kaiser finds. Sometimes it’s the only option: About a quarter of companies plan to offer a high-deductible health plan as the only insurance option for their employees in 2020, according to a survey of large employers by the National Business Group on Health
″[Deductibles are] a poor funding mechanism,” Wiik says. Yet they are there to keep premiums in check and to make health care more affordable and accessible, he says.
How a high deductible can create problems
The problem is that even though deductibles may make health insurance premiums more manageable, nearly half of Americans can’t cover the cost of an unexpected illness or injury, according to a recent survey from health savings account platform provider Lively.
“Health care is ridiculously expensive right now,” Wiik says. “Being admitted to the hospital is like buying a house.” Plus, many people don’t understand what the cost of care may look like in advance because pricing is so opaque.
In most cases of serious illness or injury, your disposable income will get wiped out, Wiik says. Many people will not be eligible for hospitals’ charity programs because they make more than $50,000 a year. That means if you have a high deductible, you are likely stuck with a $5,000 bill that may wipe out any savings you’ve managed to build.
How to pick a health plan that’s right for your budget
When shopping for health insurance plans, look at the “total cost of a plan when you’re trying to make a decision,” Buckey says. There are a number of calculators that can help run the numbers on some of the biggest costs when comparing plans, including the monthly premium, the deductible and coinsurance rates.
“It’s definitely worth sitting down for a half an hour and doing a rough calculation on the back of the envelope around what your expenses are and what your employer is offering you,” Buckley says.
If you can’t swing a more expensive monthly premium, or if your employer doesn’t offer a plan with a low deductible, consider setting up a health savings fund using a health savings account or flexible spending account that can be used to pay for out-of-pocket expenses.
HSAs, which are designed to be used with a high-deductible plan, allow you to contribute up to $3,550 per year for self coverage and up to $7,100 for family coverage in 2020. These may be offered through your employer, or you can sign up for one independently.
FSAs are offered through your employer and allow you to contribute up to $2,700 in tax-free funds in 2019, with limits expected to increase to $2,750 in 2020. You don’t need to have a high-deductible plan in order to be eligible for an FSA.
While some people may say ‘I can’t afford to do that,’ Buckey says it’s worth double checking and running the numbers. These savings accounts do reduce your taxable income, so that may net you enough to contribute. Additionally, your employer may even make contributions to an HSA, so that’s “free money,” Buckey says you should definitely be taking advantage of.
“Just take five, 10 minutes to eyeball those [benefits guides], they may have some surprises that change your mind,” she says.
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(Megan Leonhardt is a senior money writer with CNBC Make It.)