Defined

As indicated by the name, high-deductible health insurance is a health insurance policy with a high deductible. These types of health insurance policies are also known as Catastrophic Health Insurance and Consumer Directed Plans.

Who benefits from a high-deductible health insurance policy

Common wisdom is that high-deductible health insurance policies are good for young people with few medical bills and not for people who require ongoing medical care.

However, high-deductible health insurance policies can be very good for people who require ongoing medical care.

• If you participate in a tax advantage health savings account, medical expenses in the deductible are paid for by pre-tax dollars. Without such a savings plan, there is no tax benefit for medical expenses until you reach a threshold of medical expenses equal to 7.5% of adjusted gross income. Even then, expenses below the threshold are not deductible. (For information about tax advantage health savings accounts, see the document in "To Learn More.")
• Even without a tax advantage health savings account, high-deductible health insurance policies are useful for people who have substantial assets who are only concerned about protecting against catastrophic medical costs.

People with a lower income

High-deductible health insurance can be a problem for people with a lower income who cannot afford the out-of-pocket expenses included in the deductible. Small health problems which are not treated can become large health problems. Also, the tax breaks which come with a tax advantaged health savings account are less meaningful to a person with a lower income.

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