Buying a health insurance policy is one of the most confusing yet necessary processes you might experience as an adult. When shopping for the right plan, there are many things you have to consider, like the policy type, coverage type, monthly premium, and deductible amount.
While there are several aspects of health insurance that you have to understand, deductibles are among the more complex and essential parts of a policy that you want to be sure you can afford—along with the premiums that come with it.
So whether you’re new to buying insurance or have some experience shopping through the marketplace, it’s best to refresh on what a deductible is and all of the aspects that are also a part of your plan.
What Is a Health Insurance Deductible?
In simple terms, a health insurance deductible is an amount that you have to pay before your insurance provider begins to share the cost with you. A deductible is required for all health insurance plans, and selecting the right amount can help ensure that you don’t pay more than you can afford for any given medical treatment or emergency.
How Does a Deductible Work?
When you buy a health insurance plan during the enrollment period, you’ll have to specify your deductible amount. Like the other aspects of your policy, your deductible is in effect for the whole year.
Deductible
You pay full costs
Before Deductible
You share cost with your insurance
After Deductible
You also have a monthly payment called your health insurance premium—and the amount you pay in your premium depends on the type of plan you pick.
For example, if you have a “high deductible plan,” then your deductible could be as high as $5,000 before the insurance begins to assist you – but this usually means you have a lower monthly premium. Oppositely, a “lower deductible plan” gives you a lower deductible with much higher monthly premiums.
This leads to something of a risk-reward calculation for many. If you anticipate good health and few doctor’s visits (or emergencies), then you can save money with a high deductible, low premium plan. But should a medical bill come up, you will be on the hook until you meet your deductible!
More Examples of a Health Insurance Deductible
Let’s say that Tom has a health insurance plan with a $1,000 deductible.
If Tom gets into an accident that requires surgery that is $3,500, he will need to reach his $1,000 threshold during that year in medical costs before his insurer can help cover the rest of the $2,500.
If Tom already reached his $1,000 deductible, then he’ll have to look at what he owes for copay and coinsurance.
If he hasn’t met his $1,000 deductible, then he’ll pay that $1,000 out of pocket, and the remaining figure will have coinsurance applied.
Quick Tip: It’s important to know that your insurance will not cover all of the costs once you hit that deductible. Deductibles are designed to help you share the cost once you’ve reached a certain amount, which means that you’ll have to pay what’s called a copay or coinsurance if you haven’t reached your out-of-pocket maximum. You can learn more about this in the next section.
What Counts Towards the Deductible?
While not everything may count towards a deductible, most insurers allow preventive services and physical exams to be covered in full. These might include annual physicals, screenings, or seasonal flu shots.
Depending on how your health plan’s cost-sharing model is structured, the money you spend on certain medical services will get credited towards your deductible. There are ultimately two main ways that your insurer may structure this:
-
You pay first, and insurance pays later,
OR -
Your deductible is waived for some services
So before you buy a policy, double-check that you understand which services count towards your deductible so you know what to expect for routine doctor visits and other types of treatment.
After your deductible has been met, your next step is to look at what your copay and coinsurance require of you and how much your out-of-pocket maximum is. These extra details in your health insurance plan are designed further to cover the costs of medical procedures and treatments.
What Is a Copay?
A copay is a set amount you pay for a covered expense, like a doctor’s visit or prescription drug. Copays are typically only available after your deductible has been met, although some plans might have some arrangement where you can have a copay before then. So while your health insurance will cover most of a particular expense, you still have to pay that fixed fee.
If you go back to the previous example, then you’ll remember that Tom has a $300 copay for emergency room visits. If he gets into a bad car accident, Tom has to pay $300 of the total cost for his E.R. evaluation. This might seem costly for a copay, but the good news is that copays are typically inexpensive for routine checkups and doctor visits, where it might range anywhere from $15 to $75.
What Is Coinsurance?
Coinsurance is a percentage of the final cost of a medical service that you are required to pay before health insurance covers the rest. Like copays, coinsurance is only accessible after the deductible has been met.
Copay vs. Coinsurance By the Numbers
Doctor Office Visit
- Cost $150
- Copay $40
- You Pay: $40
ER Visit
- Cost $1000
- ER Copay $500
- You Pay: $500
Hospital Stay
- Cost $1,000
- Coinsurance 20%
- You Pay: $200
Doctor Office Visit
- Cost $150
- Copay $40
- You Pay: $40
ER Visit
- Cost $350
- ER Copay $500
- You Pay: $500
Hospital Stay
- Cost $10,000
- Coinsurance 20%
- You Pay: $2,000
Say that Tom has an 80/20 coinsurance percentage. This means that Tom has to pay 20% of whatever his surgery may cost before his insurance benefits kick in. Tom’s provider will only pay 80% of each future bill until he meets his out-of-pocket maximum.
What Is an Out-of-Pocket Maximum?
An out-of-pocket maximum is the most you’ll have to spend on covered services in any given year. This number must be satisfied with your healthcare provider to cover what’s left of your bill.
-
1.
You Pay all
-
2.
You pay co-pays or co-insurance, insurance pays rest
deductible is met - you paid for health care equal to the amount of the deductible
-
3.
Insurance pays all
out-of-pocket max is met - you paid for care equal to the out-of-pocket max
There are federal government limits that are updated each year, which are currently:
- $8,150 for individual plans
- $16,300 for family plans
These numbers may vary depending on your policy, but generally speaking, these costs will come from your deductible, coinsurance percentage, and copay rate. Before choosing a new health plan, always be sure that you double-check your maximum so you can better prepare for the future.
Types of Deductibles
When selecting your deductible, you’ll have the option to choose from several types that might fit yours and your family’s needs best. Some may count all kinds of services towards your deductible, while others may offer a few without doing so.
Here, you’ll read about the five most common types of health insurance deductibles that most insurers offer.
Comprehensive
A comprehensive deductible is exactly what it sounds like: This type of coverage includes all of the medical services in your health insurance plan. Once you’ve met your comprehensive deductible, your plan’s copay and coinsurance will begin to take effect.
Non-Comprehensive
A non-comprehensive deductible means not all of your medical coverages will be applied to your deductible. Your plan might provide some health services without tallying towards your annual threshold, which usually includes routine checkups, cleanings, and physicals.
Individual and Family
Although they sound like different types, individual and family deductibles are actually two halves of a whole. When a person meets their deductible under an individual plan, their benefits will kick in for them. Similarly, family deductibles are the sum of two individual deductibles, but the way this is calculated benefits the entire family.
For example, pretend that the Ramirez family has a shared insurance deductible. Each time any of these family members uses medical services applicable towards their own deductible, that amount is also credited toward the entire Ramirez family’s deductible.
In-Network or Out-of-Network
When you sign up with a health insurance provider, your plan will have what’s called “in-network” and “out-of-network” physicians. In-network physicians are doctors and dentists that are at-cost for what you’d expect within your plan. Out-of-network physicians that do not typically service your insurer are going to be more expensive, so it’s wise to choose a physician in your network.
Prescription Drug Deductible
Depending on your plan, you might have a separate deductible to help cover prescription drugs. You’ll first have to meet this deductible when picking up your prescriptions before insurance takes over. This depends on:
- How much your deductible is
- What drugs you take and how much they cost
- How many drugs you take
But even so, after you meet your deductible, you might not still be covered fully. This could vary entirely on your health insurance plan’s overall agreement and the deductible amount on your policy.
Can Adjusting Your Deductible Save Money?
To many, healthcare is a cost that may be difficult to keep up with. The bright side is that there could be benefits to adjusting your deductible depending on how much you pay for your monthly premiums and out-of-pocket.
First, ask yourself some basic questions that can help you assess how much healthcare you need, such as:
- How often have you gone to the doctor in the past few years?
- Do you require prescription drugs?
- Could you cover the cost of a higher deductible if faced with a larger bill?
- Could you cover the cost of a higher deductible if faced with a larger bill?
- Are you generally healthy, or do you require routine doctor visits?
If you are generally healthy and could potentially cover a higher bill in the event of an emergency, then a high deductible health plan (HDHP) might be a good option for you. On the other hand, those who often go to the doctor for routine visits and prescription medication might do well with lower plans. It ultimately comes down to preference, but you can learn more about the popular HDHP option.
Choosing the Right Deductible Amount
Shopping for the right health insurance policy can be daunting, but an excellent place to start is to evaluate your budget and your overall health. When buying a plan, these are important factors that can help you determine the deductible amount you can afford.
If you keep your potential costs in mind and evaluate your budget and needs, then finding a health plan for you and your family should be simple. And with Nerdy Insurance Agency, you can shop through hundreds of plans available near you today.