What Exactly Are No-Deductible Health Plans?

While most health insurance plans require you to pay out-of-pocket costs up to an annual deductible amount before coverage kicks in, no-deductible plans skip this step.

Instead of fronting healthcare expenses until you hit a deductible, your insurer starts chipping in a percentage of costs right away. However, you still pay coinsurance — usually 20% to 40% of each bill — until reaching your out-of-pocket maximum.

For example, let’s say you have a doctor’s visit that costs $100 and your coinsurance rate is 30%. With a typical plan, you would pay the full $100 because that’s your deductible. But under a no-deductible plan, you would owe $30 while insurance covers the remaining $70.

The Average Premium Price Tag

Eliminating deductibles allows no-deductible plans to provide more upfront coverage. But this perk comes at a price — specifically higher monthly premiums. According to market analysts, the average 40-year-old pays $586 per month for an Affordable Care Act no-deductible plan versus $509 for a standard ACA plan. Over a full year, that premium difference works out to around $924.

Do the Potential Savings Outweigh the Added Costs?

To decide whether steeper premiums for a no-deductible plan are worth it, you need to estimate your annual medical expenses. These plans tend to benefit those who expect frequent doctor visits, tests, or prescription medications that would normally fall under the deductible.

For example, let’s compare a no-deductible plan and a high-deductible plan for $5,000 in total medical expenses, assuming both have 40% coinsurance. Under the no-deductible plan, you would pay $2,000 out-of-pocket based on coinsurance alone. But with the high-deductible plan, you would first pay the $2,000 deductible and an additional $1,200 in coinsurance, bringing your total out-of-pocket costs to $3,200. In this case, the no-deductible plan would save you $1,200.

On the other hand, those who rarely need medical care might save more with a high-deductible plan. For example, if your total medical expenses were just $500 for the year, under a no-deductible plan with 40% coinsurance, you would pay only $200 (40% of $500). However, with a high-deductible plan that has a $2,000 deductible, you would pay the full $500 out-of-pocket, since your expenses do not exceed the deductible, and no coinsurance would apply.

While this might seem like you’re paying more out-of-pocket in the high-deductible plan, the key is that the premiums for high-deductible plans are generally much lower. Therefore, despite paying the full $500 for care, the savings in premiums over the year could more than make up for the difference, making the high-deductible plan more cost-effective for those with minimal healthcare needs.

Additional Pros and Cons to Weigh

Zeroing out your deductible provides advantages beyond direct cost savings:

• Increased access to care: Deductible costs make some individuals reluctant to seek treatment. No-deductible plans remove this barrier. This is especially important for managing chronic conditions. When people skip care due to high deductibles, small health problems can become serious issues over time. No-deductible coverage generally encourages members to get preventive care and necessary treatment for existing conditions before they escalate.
• Lower likelihood of large medical bill shock: Even low coinsurance charges add up gradually rather than hitting you with a huge fee after a single major procedure. For example, let’s say you need an MRI that costs $1,500. With a typical $3,000 deductible plan, you’d pay the full cost. But with a no-deductible plan and 30% coinsurance, you’d only pay $450 for the test. Spreading costs evenly over time can help consumers budget better.

At the same time, disadvantages like the following should give you pause about no-deductible policies:

• Potential for higher overall costs: That 40% coinsurance can ultimately exceed a deductible you would have otherwise paid under an alternate plan, especially if you require extensive medical services. For instance, by the time you hit a plan’s $8,500 out-of-pocket limit at a 40% rate on $21,250 in total claims, you are well over what even the highest standard deductibles cost upfront.
• Poor fit for the healthy and injury-free: Why pay elevated premiums year after year if you rarely tap into the extra coverage? No-deductible plans make the most sense financially if you already have ongoing medical needs or chronic conditions requiring regular treatment and medication. Otherwise, much of what you spend on premiums may amount to wasted money.

Assess Your Alternatives

Rather than committing immediately to no-deductible insurance, take time to explore other options your employer or the Affordable Care Act insurance exchanges have on the menu:

• Low-deductible plans: These maintain deductibles but set them lower than typical, often at under $1,000. Pairing that with reasonable coinsurance can lead to annual savings if your healthcare needs exceed this reduced deductible threshold.
• Health savings account (HSA) plans: HSA plans combine high-deductibles with tax-free savings accounts for medical expenses. Your unused HSA balance rolls over year to year, letting you grow your healthcare nest egg.
• Point-of-service (POS) plans: Some POS plans eliminate deductibles for in-network providers. As long as you get referrals and stick to approved doctors and facilities, you can access no-deductible-like coverage. Just keep an eye on POS premiums, which are comparable to true no-deductible plans.

In this issue:

Required Minimum Distributions: What Retirees Need to Know for 2024

What Exactly Are No-Deductible Health Plans?

How Life Changes Impact Your Life Insurance Needs

Grow Your Nest Egg Tax-Free with a Roth IRA

How to Get Your Retirement Back on Track Post-Divorce

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