At least several times a week a potential client will ask me about health insurance with no deductible. There are several plans that technically have a zero deductible that are available to our clients in Connecticut. They all have two things in common. They are over priced and they have other cost-shares.
A cost-share is a generic term that includes deductibles, co-pays and co-insurance. In other words if they don’t stab you in the back they shoot you in the arm. Having a zero deductible but an outrageous out-of-pocket maximum amount isn’t a good idea. I usually try to talk people out of looking for providers of health insurance with no deducible even though private health insurance no annual deductible is available through our agency.
Zero deductible plans cost more because they are over used. When policy holders have very high deductibles they will often wait too long to visit a doctor. They may avoid doctors until a unignorable symptom presents and then it may be too late to help them, or will cost more to fix than it would have to prevent. It is also true that if there are no co-pays, deductibles or other cost-shares, people will go to the doctor more than they should.
For this reason zero deductible medical insurance plans are not all they are cracked up to be unless you create your own.
How do you create your own? First you purchase an HSA compatible high deductible health plan. A $2500 HDHP is available in Connecticut from Anthem Blue Cross Blue Shield. You will find that the cost for your policy is much lower than a zero deductible policy. In fact it will almost certainly be so much lower that you will save at least $2,500 each year. If you take $2,500 of the money you save and put it into a tax-advantaged health savings account you will in effect create your own no deductible health insurance plan.
A health savings account is a special tax advantaged account that works very similarly to an IRA. Money contributed to your HSA can be deducted from your adjusted gross income when you file your income taxes. Any money in your account rolls over from year to year and can be used to make your retirement better when you close your account. There is a penalty for premature withdrawal, but you can remove money from your account to pay for most medical or dental expenses.
With a typical HSA you will be given a debit card that you can use in your doctor’s office and pharmacy. Since this is not a taxable event you will pay for your uncovered expenses with pre-tax dollars.
Here is an example for a couple who are both 55 years old and who have a son. They asked me about zero deductible health insurance. I tried to explain to them that they should create their own no deductible insurance plan.
One of their choices includes a $500 deductible plan offered by Connecticare. The price for the policy is $1375 each month. A comparable 0 deductible insurance plan, if it existed, would be much more expensive.
The cost for a $6000 deductible plan from Aetna is $654 per month. This saves them $721 a month or $8652 per year. If they take $6,000 of the savings and place it into their health savings account, they start out $2,652 ahead. They will in effect have 0 deductible health insurance even if they spend all of the money in their saving account each year. When you add the tax benefits, they move farther ahead. If you assume that they won’t always have $6,000 of expenses every year, they move farther ahead because any left over money stays in their retirement fund.
Create your own no deductible health insurance plan and you will reap the rewards of lower premiums and a bigger nest egg for retirement. Isn’t that better than just getting health insurance with no deductible?