Difference Between High Deductible and Traditional Health Insurance Plans
A high deductible health plan (HDHP) entails a health insurance policy with a high minimum deductible for expenses. To break it down, a deductible is the share of an insurance claim paid out of the insured’s pocket. When compared to regular health plans, an HDHP comes with a higher annual deductible. Also, its minimum deductible tends to vary each year.
Notably, several benefits accompany a high deductible health plan. This is why individuals planning to get a health plan should find out how different HDHP is from traditional plans. Subsequently, they should take note of how high deductible health plans work and the pros and cons related to it.
Difference between HDHP and Traditional Health Insurance Plans
These are among the most prominent differences between high deductibles health plans and traditional health insurance policies:
| Parameter | High Deductible Health Plan | Traditional Health Plan |
| Premium | Lower compared to traditional health insurance policies | Comparatively higher than HDHP |
| Limit the out-of-pocket and annual deductible | Typically, the out of the pocket ceiling is higher in an HDHP. | The said limit varies as per insurance plan and employer (in case of an employer-provided insurance policy) |
How does High Deductible in Health Insurance Work?
Ideally, a health insurance policy starts covering medical expenses only after the deductible amount is paid off. In other words, the insurance provider is bound to settle the claim amount after the medical expense exceeds the pre-decided deductible. Note that this is applicable to both HDHP and traditional health insurance plans.
For example, suppose a policyholder has to undergo surgery that will cost around Rs. 1.5 lakh. So, post hospitalisation, the policyholder raises a claim.
Now, the said health insurance policy’s deductible is Rs. 60,000. This means the policyholder will have to pay 100% of the medical expenses out of pocket until the bill amount exceeds Rs. 60,000. The insurance provider will cover the rest of the bill or other expenses.
It must be noted that whenever the medical bill is less than the deductible amount, the policyholder will have to bear the entire expense out of pocket. So, if we factor in the above example, if the surgery would have cost Rs. 50,000, the policyholder could not have raised a claim for the same under his/her health insurance policy.
Additionally, it can be said that HDHP prevents an insurer from raising small claims. It aims to curb the tendency of raising an unnecessary claim just because one has insurance coverage. This works out in favour of the insured and prevents him/her from missing out on the No Claim Bonus (NCB) or wasting coverage on minor medical bills.
Factors Impacting Calculation of Deductibles in Health Insurance
Several factors impact the deductible amount of an HDHP. The most common ones include:
- Pre-existing conditions: Individuals with pre-existing health conditions like asthma, diabetes, etc., may have to pay a higher deductible.
- Age: Senior citizens are more likely to pay a higher deductible amount.
- Past medical concerns: Those with a history of illness or chronic disorders might have to pay a higher amount as the insurance deductible.
- Current lifestyle: Individuals with poor lifestyle choices such as smoking, alcohol or substance abuse often have to bear a higher portion of the medical expense.
Benefits of High Deductibles in Health Insurance
These are among the most significant benefits of high deductible health plans:
1. Lower Premium
The most significant benefit of HDHP is that insurance policies with high deductibles come with a low monthly premium. This lowers policyholders’ monthly obligations significantly and, in turn, helps save more money down the road.
2. Minimise Frequency of Claim
As the name suggests, the deductibles in HDHPs are significantly high. This discourages policyholders from raising a claim every time they incur a medical expense. In turn, it allows policyholders to avail financial assistance in case of a medical emergency leading to a higher bill.
3. Increase the Chance of Availing of an NCB
Leading health insurance policy providers offer exclusive discounts such as No Claim Bonus (NCB) for not raising any claim during a given period. Needless to say, such offers help policyholders to save money on policy renewal or provide additional benefits.
Besides these, it is believed that HDHPs can prove effective in lowering healthcare costs by simply making people conscious of medical expenses.
Disadvantages of High Deductibles in Health Insurance
These are some cons of high deductibles health insurance plans:
1. Payout of Pocket to Avail of Treatment
Policyholders have to pay a high deductible amount, i.e., cover a significant portion of the medical bill from their pocket before they can raise a claim under their health insurance policy. This often comes off as a hurdle while availing treatment for a medical condition.
2. High Out of the Pocket Amount
When compared to typical deductible plans, HDHPs come with higher deductibles. If the burden of paying for a part of medical expenses was not a burden enough, paying a higher amount makes it challenging for some policyholders to seek quality treatment. Also, depending on medical requirements, such costs could require policyholders to pay off a significant amount before claiming benefits.
3. Does not Cover Small Medical Expenses
When a policyholder incurs medical expenses that are less than the deductible amount, they cannot raise a claim under their health plan. Instead, they have to pay for the medical bill out of their pocket. Consequently, paying for multiple medical emergencies that incur small expenses could drain one’s savings over time.
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How to Choose a High Deductible Health Plan?
The following factors should be kept in mind when selecting a high deductible health plan:
1. Age
Usually, younger people are deemed suitable for a health insurance policy with a high premium. They are seldom on the outlook to avail themselves of a healthcare cover except when met with a medical emergency.
2. Requirement
Those who want to get the most of their medical expenses covered can opt for an insurance policy with a lower deductible and a higher premium. On the other hand, those who plan to pay a low premium yet avail the benefits of health insurance during critical medical conditions can opt for policy plans with higher deductibles.
3. Financial Standing
Individuals capable of covering high deductibles from their pocket are better off availing HDHPs.
4. Catastrophic Limit
Typically, high deductibles health plans come with an annual catastrophic ceiling on out-of-pocket expenses for services covered under in-network providers. Once the policyholder reaches this limit, he/she has to pay for the in-network care expenses from his/her own pocket.
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Final Word
Individuals must weigh in their anticipated healthcare needs before opting for an HDHP. Typically, individuals who do not require health care above and beyond the preventives will find high deductible health insurance plans more suitable than traditional plans.
FAQs
Ans: If a policyholder cannot meet the agreed deductible amount, he/she might not be able to raise a claim. Once the policyholder pays the deductible, the insurance provider will bear the remaining cost if the medical bill exceeds the deductible.
Ans: The suitability of a health insurance plan with a high or low deductible depends on several factors, including age, anticipated medical requirements and ability to pay a premium. Typically, individuals who can account for a portion of medical expenses and do not necessarily have any chronic disorder that requires frequent treatment find HDHP more suited.
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Disclaimer: This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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