Understanding your deductible is crucial when you are choosing the right health insurance plan. A health insurance deductible is the amount of money you need to spend out of pocket for covered services before insurance pays for your care. It can seriously influence your overall costs for healthcare, especially when you may have to visit a medical center frequently. This guide goes through what a health insurance deductible is, how it works, and how it compares to the costs of premiums, copays, and coinsurance.
What is Health Insurance Deductible?
Health insurance deductible: The insured pays the amount before service is covered by the insurance company. Usually, it is an annual expense that varies based on the insurance plan. Continuing with the previous example, if you need a medical service priced at $3,000 and the plan has a $1,000 deductible, you will need to pay the first $1,000 out of your pocket, and the insurance will cover the rest $2,000 as long as it’s included under your plan.
Often, the size of the deductible varies between plans. As with plans, deductibles generally get lower when the monthly premium gets higher. On the other hand, deductibles tend to be higher on plans that come at lower premiums. Tuning in to this balance is crucial to the plan that is perfect for your healthcare needs and your budget.
Other Costs of Health Insurance
The deductible is a huge cost to consider, but it’s not the only out-of-pocket expense with health insurance. The other common terms you’ll come across when going through your healthcare coverage worth a look:
- Monthly Premium: This is the amount you pay each month for your health insurance to stay active. This is separate from the deductible you often pay to your provider of insurance. The level of coverage, type of plan, and your health status can affect premiums.
- Copayments (Copays): A fixed amount you pay for certain medical services or a prescription is called a copayment. Let’s say you have a $30 copay for a doctor’s visit, separate from your deductible. Usually, copayments don’t count toward meeting your deductible.
- Coinsurance: It is the percentage of medical costs you are responsible for paying once you’ve met your deductible. For example, let’s say you have a medical bill of $2,000, and under your plan, you’re to pay 20% coinsurance, you would pay $400 (20% of $2,000) and insurance would pay 80%.
- Out-of-Pocket Maximum: Out-of-pocket maximum is the most you have to pay out of pocket for covered services in any given year. Your deductible, copayments, and coinsurance are all included in this limit. After hitting this maximum, they will cover everything else you pay for the rest of the year.
- Preventive Care: Preventive services are often something that many insurance plans will pay for at no cost to you, so these services won’t require you to meet your deductible or be subject to a copayment. For instance, routine screenings as mammograms may be covered in full.
How Do Health Insurance Deductibles Actually Work?
To understand how a health insurance deductible works, let’s take an example. Let’s say you have a $1,000 deductible and are in need of a medical procedure that costs $3,000. The first $1,000 of the bill would be charged, and you’d cover it. If you haven’t met your deductible, and since you are not one of the lucky few who purchased collision coverage, your insurance company would cover the other $2,000, assuming they cover the deductible—again, minus any copayments or coinsurance.
Your health insurance plan will then pick up most of the cost of your medical care after you’ve met your deductible, but you might be responsible for copayments or coinsurance. You begin the process over again at the end of the year for the new policy year, and at the end of the year, the deductible resets.
Types of Deductibles: Individual vs. Family
The structure of the health insurance plan can vary between plans with individual or family coverage. Suppose, for instance, you have an individual policy and have to pay one deductible for most healthcare necessities. But if your coverage provides family coverage, the individual and family deductibles will differ for each member of the family, as well as a family deductible threshold that begins after a specified amount of total family expenses.
HDHP
You can also consider another option, such as high-deductible health plans (HDHPs). Plans offered through these plans have higher deductibles than what traditional plans would have, but for cheaper monthly premiums. Young and healthy people who don’t expect to need much medical care might like the idea of an HDHP.
Furthermore, if you choose a high-deductible plan, you may be able to put money into a Health Savings Account (HSA). An HSA is a tax-free savings option for you to save your pre-tax money towards paying your healthcare bills, including your deductible. It could be a fabulous means of lowering your taxes and controlling your cost of healthcare.
Affordable Care Act (ACA) Marketplace Health Insurance Plans
If you’re purchasing insurance through the ACA marketplace, there are four plan categories to choose from: Gold, Silver, Bronze, and Platinum. Each of these plans has varying deductibles and amounts of coverage.
- Bronze: The highest deductible and lowest monthly premium. On average, it pays for up to 60% of your healthcare costs, and you are responsible for the remaining 40%.
- Silver: Silver plans have a higher premium and they cover 70% of medical costs.
- Gold: Gold plans mean the premium is higher, and 80% of medical expenses are covered.
- Platinum: The platinum plans, which have the highest monthly premiums and offer the highest level of coverage, at 90%, ensure you’re covered for most medical bills.
Your medical needs and how much you can spend make it important to choose a plan. While your premiums will be higher with a Gold or Platinum plan, if you anticipate regular medical visits or a chronic condition, these plans may make more sense. But if you are generally in good health and don’t expect lots of medical expenses, a Bronze plan could be the bargain.
Comparisons of Health Insurance Plans
To compare health insurance plans means you need to think of them as something more than the deductible. Take a close look at:
- Your Health Needs: If you have a chronic condition or need frequent care, a lower deductible plan may save you money in the long haul.
- Monthly Premium: If it seems that you can get a lower premium, don’t be fooled by it as it might mean that you will need to pay more out of pocket.
- Out-of-Pocket Maximum: Also make sure that the plan you choose has an affordable out-of-pocket maximum that you can afford. And this is important, especially if so much medical care is what you’re expecting.
- Preventive Care and Coverage for Specific Services: Some plans also do not have any deductible or copay when it comes to some services. If your plan offers this, then be sure to check before doing so.
The Bottom Line
Knowing what your health insurance deductible is, so you know your out-of-pocket cost when you visit the doctor, is crucial when selecting a health insurance plan to suit your needs and budget. Deductibles are different on different plans, and these deductibles and premiums, as well as copayments and coinsurance, work together to find out how much you will pay altogether out of pocket. And healthy individuals might consider high-deductible plans, while those with ongoing medical needs will want low deductibles. Don’t forget to look at how much everything will cost overall or with your health and situation to look at.
Knowing the health insurance deductible and how that affects your total cost can help guide your selection of the best health insurance for you and your family.
