Should You Choose a High Deductible Health Plan or a Co-Pay Plan?

This week we sat down with head of the advisor team, Emily Joyce, to discuss a frequently asked question: what’s the difference between a high deductible health plan and a co-pay plan, and why does it matter?

As a Gravie advisor, I field a lot of questions about different types of health insurance plans. One of the most common questions I get is, “Which is better: a high deductible health plan or a co-pay plan?” The answer isn’t that simple. It requires you to think about what you want and need in a plan, and how much your budget is. My answer is always that it depends on your unique healthcare needs and your personal budget.

Here are some key differentiators to keep in mind as you make your coverage decisions.

High Deductible Health Plan (HDHP)

The details:

• How much you pay out of pocket depends primarily on two things: your deductible and your out-of-pocket maximum. Your deductible is the amount you’ll pay before the health insurance company begins helping you pay for your covered expenses. The out-of-pocket maximum is the most you’ll pay out of pocket for the policy year.
• After you meet your deductible, you’ll likely have what’s called a “co-insurance.” A co-insurance is basically a fancy term for the cost sharing percentage between you and the insurance company. For example, let’s say you’ve met your deductible of $2,500 for the year. When you visit a specialist, you have a 20% co-insurance. You visit the dermatologist (a specialist) and have a $100 bill. You will cover 20% of the covered expense ($20) and your insurance company will cover 80% ($80). You’ll continue to pay co-insurance on the covered expenses that require it until you meet your $4,000 out-of-pocket maximum. At that point, the insurance company pays 100%, and you’re done paying the co-insurance.

Who do HDHPs make sense for?

• These plans tend to work well for people who know they’ll meet their deductible early in the year and who can afford to pay the deductible—sometimes in one lump sum—over the course of a year.
• HDHPs may also make sense for people who don’t go to the doctor often. These plans typically have lower monthly premiums. For people who don’t expect medical expenses, these plans may be better.

Perks:

• Lower monthly premiums than co-pay plans.
• If you have a HDHP, you’re often eligible for a health savings account (HSA). This is essentially a savings account where you can put money aside to spend on qualified medical expenses, including deductibles. The money you deposit into a health savings account is tax advantaged, meaning that you can deduct contributions that you make to the account on your taxes. Reimbursements for qualified expenses made from the account are also not taxed.
• It may seem like paying “full price” until you meet your deductible isn’t saving you anything out of pocket. However, with a HDHP the insurance company negotiates reduced payment rates with medical providers. That means you’re charged the same amount the insurance company would pay rather than the list price for medical care that you would pay if you didn’t have coverage.

Co-Pay Plan 

The details:

• A co-pay plan sets fixed dollar amounts (called “co-pays”) that you’re required to pay when you go in for medical services. As an example, your plan could have a $20 co-pay for primary care doctors, $40 for specialists, and $15 for generic drugs. When you go to the doctor or refill a prescription, this is the amount you’ll pay, subject to any deductible or co-insurance. You will usually pay a higher monthly premium to get the coverage benefit of co-pays up front.
• Co-pay plans will usually have a co-insurance (the cost sharing with the health insurance company) on higher ticket services, like hospital stays, maternity care, x-rays, etc. It’s important to check all details of the plan to get the specifics.
• Co-pay plans will still have a deductible (in some cases it will be $0) and out-of-pocket maximum. Co-pays usually do not count towards the deductible, but they do count towards your annual out-of-pocket maximum. If you reach your out-of-pocket maximum, the insurance company pays 100%, eliminating the need to pay your co-pays.

Who do co-pay plans make sense for?

• Co-pay plans may make sense for people who don’t make many trips to the doctor’s office, but want the security of first dollar coverage.
• These plans also make sense for people who don’t have the budget to pay the full price of a medical bill or prescription out-of-pocket or for people who are willing to pay more each month for the peace of mind in knowing about how much they’ll pay when they visit the doctor.

Perks:

• Peace of mind knowing how much you’ll pay when you visit the doctor.

It All Comes Down to What Makes Sense for You

Deciding between an HDHP and a co-pay plan isn’t necessarily a matter of one plan being “better” than the other. It all comes down to what makes sense for your finances and your healthcare needs. Gravie advisors are available to help you decide which plan provides the most value for your unique situation. Start the discussion today by emailing us at help@gravie.com, calling us at 800.501.2920, or tweeting us at @gogravie.