04/ 29/ 2005
by Jeffrey Moses
The rising cost of health coverage is perhaps exceeded only by the rising cost of health insurance. Many self-employed individuals (as well as many small-business owners with employees) are finding health insurance costs increasing 25-30 percent annually.
One way to combat this rising cost is to choose higher deductible levels for your insurance. ("Deductible" in insurance terms is the amount that an individual must pay for health care before payments from the insurance company begin. After the deductible is met, insurance companies traditionally pay either 70 or 80 percent of covered expenses up to certain limits, depending on the plan.)
In general, the higher the deductible, the lower the monthly premium required for the insurance. Monthly savings on higher deductible levels can be substantial, but the downside of selecting a higher deductible is that more money must be paid out-of-pocket before insurance coverage begins.
Standard deductible limits range from $50 to $250, but deductibles as high as $1,000, $2,000, $2,500 and even $5,000 are often available. These high deductibles, often called "catastrophic" coverage, result in greatly-reduced monthly premiums. But the potential for higher out-of-pocket payments brings additional risk.
Consider the following points before selecting a high-deductible plan:
- Make sure that the deductible and co-insurance levels you pick are affordable. If your deductible is, say, $2,500, a single trip to the emergency room or unplanned minor surgery will likely require you to pay the entire cost for medical procedures all at one time. If that's not possible for you—or would put a severe strain on your financial well-being—consider a lower deductible.
- One way to be sure that you can meet the deductible is to set aside the deductible amount in a readily accessible account. This can serve as a savings or retirement account if you don't need to spend it for medical purposes.
- Another option when selecting high deductibles is to begin a Health Savings Account or Health Reimbursement Account. HSAs/HRAs allow you to make tax-deductible contributions that can be used for medical expenses not covered by your insurance. A medical insurance expert can help you set up an HRA or HSA. These come with numerous options, among them is the choice to allow contributions to remain eligible from one year to the next, as opposed to having to use all contributions within a certain year. When possible, choose to have contributions carry from one year to the next.
- Many health insurance plans put limits on certain types of medical coverage. This means that the insurer will not pay all of what a doctor or hospital charges for certain procedures, meaning that you will have to pay the difference. Even worse, what you pay may not apply to your deductible. Check carefully before selecting a medical insurance plan—or before choosing to raise your deductible—to make sure that any elective medical procedures you are considering will be covered fully. Also, consult with your physician before the procedure to make sure that your insurance will fully apply medical costs to your deductible.
- Check with the insurance company regarding pre-existing medical conditions that may not be covered. At any point of coverage, your insurer should be able to tell you precisely what pre-existing conditions apply to you.
- Total lifetime medical coverage should extend to at least $1 million (ideally, $2 million or more). This may seem like an extraordinarily high amount, but serious illnesses can easily require that much and more over the course of years or decades. Don't select a high deductible if it means you need to accept a lower amount of total lifetime coverage.
