Is it more important to have a low deductible or a low premium?

The choice between a low deductible or a low premium is a personal one. There is no right or wrong arrangement, but there are basic factors to consider when making a decision, primarily in regard to an individual's financial condition, family status and overall health.

How Deductibles Work

The deductible amount of a health insurance policy is the amount an individual must first pay out of pocket before the insurance company begins covering health costs. Once an individual pays out the full deductible amount, the insurance company begins to cover costs at a co-insurance rate. At the co-insurance level, the insurance company typically covers about 80% of medical costs, while the individual pays 20%. This continues until the maximum out-of-pocket level for the individual is reached. Beyond that point, the insurance company pays for 100% of covered medical costs.

Deductibles and Premiums

Health insurance plans offer a wide range of possible deductibles, from a few hundred dollars up to as much as several thousand dollars. Every deductible amount goes with an inversely related premium payment amount. That is, the higher the deductible, the lower the monthly premium, and conversely, the lower the deductible, the higher the monthly premium.

To determine a good deductible/premium level, an individual should first consider how much he can afford to pay in monthly premiums. A lower deductible might be desirable, but the higher premium required to obtain the low-level deductible may be financially out of reach.

A second basic consideration is the individual's current health. High-deductible, low-premium policies are well-suited to younger individuals in good health, those who do not anticipate significant expenditures on health care. Older individuals or others expecting to require a substantial amount of medical care, such as people with chronic illnesses, may find it more cost effective to go with a lower deductible plan. This is almost certainly the case for anyone anticipating hospitalization. Other important things to consider in selecting an insurance plan are the covered expenses and the maximum out-of-pocket level.