By Farooq Ahmed Farid | 30 Sep 2020

Should I Increase the Deductible on My Health Plan?

When shopping around for a suitable health insurance plan, one of the questions you may consider is whether you should increase your plan deductible. This blog looks at what you need to consider before making a decision to ensure you get the most suitable plan for your needs and budget!

 

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When shopping around for a suitable health insurance plan there are many questions you’ll ask, such as:

  • Do I need cover exclusively for myself, or for my partner and children, too?
  • Do I need dental and maternity cover?
  • What other added features do can I get with my plan?
  • What exclusions will apply to my cover?
  • Should I choose a low or a high annual deductible?

This blog looks at this last question about annual deductibles, including what you need to consider before making a decision to ensure you get the most suitable plan for your needs and budget!

What is a Deductible?

A deductible is the ‘out of pocket’ healthcare costs you agree to pay for your healthcare before your insurer pays out. As a rule of thumb, choosing a higher deductible means a lower insurance premium, and vice versa. However if you do choose a higher deductible, you will have to pay out more for any treatment you need.

For example, let's say you have an annual deductible of USD 2,000 on your private health plan and need surgery costing USD 10,000. This means you would need to pay the first USD 2,000, with your insurer paying the remaining USD 8,000, subject to any exclusions or benefit limit. 

Do all Deductibles Work in the Same Way?

Not necessarily, so it is important to check the fine print before making a decision. At Now Health International plan, our annual deductible applies per insured person, per period of cover, with our standard period of cover being 12 months.

However some insurers may apply it differently, for example there may be a per claim deductible which applies to each specific claim your make, rather than over your entire period of cover. You will also need to check what the deductible applies to. For example in some cases it may apply to all treatment types, and in others it may only apply to In/Day-Patient hospital treatment, but not Out-Patient treatment such as a GP visit.

What’s the difference between a Deductible and a Co-Insurance?

Your plan may also include a co-insurance which should not be confused with a deductible. A co-insurance is another cost sharing mechanism between you and your insurance provider which can also help to lower your premium.

A co-insurance is a percentage of every medical bill that you will pay, and it usually applies to a particular type of treatment. For example you may have a 20% co-insurance applied to all dental care, which means you will have to pay 20% of the cost each time you visit the dentist.  

An annual deductible is different as it does not apply to every medical visit. It usually applies per member per period of cover, meaning that once you've paid out your deductible, then you will no longer need to pay towards the cost of further treatment in that plan year. However the annual deductible will then reset each year that you renew your plan. 

You can have both an annual deductible and a co-insurance on your plan, so it’s important to check how they interact with each other. This will ensure you don’t get caught out by any unexpected medical expenses.  If you have any questions you can check with your insurance provider or intermediary for more information.

What are the Pros and Cons of Choosing a Higher or Lower Deductible?

Choosing a higher deductible, particularly if you opt for the maximum possible value, can significantly reduce the cost of your insurance premium. Therefore opting for a higher deductible may allow you to take out a higher level of cover, such as a plan that includes coverage for dental or maternity treatment.

This might be appropriate if you have a tight budget and do not expect to need to use your plan for costly treatment in the coming year. However, while opting for a higher deductible will save you cash in the short-term, it may leave you with significant out of pocket costs if the worst happens and you do require treatment.

When choosing a higher deductible, you should consider:

  • What you can realistically afford to pay as an out of pocket medical cost?
  • How your affordability will be affected if you take out additional cover for your partner or family?
  • The potential stress of addressing your out of pocket costs while seriously ill or awaiting urgent medical care.

In contrast, opting for a lower deductible will increase your premium as the insurance provider will be taking on more risk on your behalf. This increase can be significant especially if you're looking at a more comprehensive plan, which may impact the affordability of a plan depending on your budget. However the upside to selecting a low deductible is that it will reduce your out of pocket medical costs.

Whenever you get a quote for a health plan ensure you should check what annual deductible will apply as a default, if any, and what options are available if you wish to change it. In some instances you may be able to have a nil deductible (i.e. USD 0), or you could increase it to the maximum limit which may be as high as USD 15,000.

What Happens if I’m on a Private Health Plan Through my Employer?

When employers offer private health cover as part of your benefits package, they will select an annual deductible based on their budget. It’s likely an employer provided plan will include at least some level of deductible so make sure you double check what this is and know how it applies.

Should I Increase the Deductible on my Health Plan?

Increasing your annual deductible may be an easy way to decrease your insurance premium. However, as with every other aspect of your health insurance plan, you should carefully consider what level of deductible is appropriate to you and your family’s needs. If you do select an annual deductible, make sure you are comfortable with the potential out of pocket medical costs that come with it!  

 

By Farooq Ahmed Farid

Farooq is a qualified actuary, a risk & underwriting management professional, strategist and data scientist. During his career, Farooq has been instrumental in helping to develop international best practices across underwriting, technical pricing, actuarial, analytics, product development, risk management, reinsurance, and business intelligence in order to implement successful strategic business plans.

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