Healthcare is a major burden for working Americans, and a big part of that boils down to high deductibles. The Kaiser Family Foundation estimates that 82% of insured workers are responsible for a deductible as part of their health plan. Furthermore, among workers who have one, the average deductible is $1,655. That means that until that $1,655 is spent out of pocket, an insurance provider won't pick up the tab for health services -- though generally, certain preventive services are exempt from deductibles.
If you're on the hook for a deductible of $1,655 or thereabouts, you may be eager to find a health insurance plan that comes with a lower one. But before you do, realize that having a higher deductible could lead to certain benefits.
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1. Lower insurance premiums
Health insurance premiums and deductibles usually have an inverse relationship, which means that if one is on the higher side, the other will typically be lower. Therefore, if you have a high deductible, it could translate to lower premium costs month after month. That's beneficial if you're the type who rarely gets sick, and you therefore don't tend to use your insurance all that often.
2. HSA eligibility
Having a higher deductible could render you eligible for a health savings account, or HSA, and that introduces a world of immediate and long-term tax savings. HSAs let you contribute money on a pre-tax basis for qualified medical expenses. The funds you put in don't expire, so you can carry them from year to year and invest whatever money you don't need immediately. In fact, a big benefit of HSAs is that any investment growth you achieve in your account is tax-free as well, and withdrawals are tax-free provided they're used for eligible medical expenses.
Let's imagine you contribute $2,000 to an HSA this year. That's $2,000 in income you won't be taxed on. Furthermore, if you invest that $2,000 and grow it into $3,500, you won't pay taxes on $1,500 worth of gains.
To qualify for an HSA in the first place, you need to be on a high-deductible health insurance plan. For 2020, that means an annual deductible of $1,400 or more if you have individual coverage, or $2,800 or more for family coverage. Therefore, if you're looking at a $1,655 deductible and you have self-only coverage, you're good to go. At that point, you'll be able to contribute up to $3,550 a year as an individual (family contributions are capped at $7,100). And if you're 55 or older, you can put in an extra $1,000 as a catch-up, just as you're allowed to make catch-up contributions to popular retirement savings plans like IRAs and 401(k)s.
Managing your deductible
If you're grappling with a high health insurance deductible, there are a few things you can do to avoid financial stress. First, aim to have the equivalent of your deductible available in emergency savings. Next, figure out what preventive services you're entitled to before your deductible kicks in. That way, you might manage to get ahead of certain health issues before they become larger ones and cost you money. Finally, review your health insurance choices year after year, and see if a lower deductible plan is available, keeping in mind that if you switch, you will lose out on an HSA and will likely see your premium costs go up. However, in some cases, a plan with a lower deductible could make more sense.
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