A Guide to Health Insurance Deductibles

When you are signing up for health insurance and reviewing all the different plans available, it can be quite confusing trying to decipher the meanings of the terms.

Trying to make a wise decision for yourself and estimating healthcare costs can be difficult when you don’t understand what the different plans are.

The goal of this article is to help you understand one of those confusing words: deductible.

First, we’ll discuss what a deductible is, how it works, the different types of plans, and which services require a deductible.

Then, we’ll go over the differences between deductibles, copays, and out-of-pocket expenses. Finally, we will go over how you can save some money.

What Is a Health Insurance Deductible?

The deductible of your plan is the part you will have to pay for healthcare services you receive before your insurance benefits kick in.

For example, if you have a deductible of $2,000, you will need to pay the first $2,000 of any healthcare bills yourself, before your insurance will begin to pay.

Keep in mind, some healthcare services are covered by your insurance before you have paid the full deductible.

For example, preventive care, which is something you must do regularly to prevent illness, is usually covered by insurance regardless of how much you have paid towards the deductible.

In some cases, there are separate deductibles for certain services (for example, prescription drugs or per hospital admission).

Family plans typically have both a deductible for each person and a family deductible that applies to all members of the family.

After you pay your complete deductible, your health insurance benefits kick in.

You will normally pay a copay, or coinsurance, for any healthcare services you may need up until your out-of-pocket maximum is reached.

How Health Insurance Deductibles Work

Typically, when you sign up for an insurance policy, you are signing up for one year of coverage, also called the “plan year” or “policy year”.

Let’s say, for example, during that plan year you get a sinus infection and need to visit urgent care.

If this is the first healthcare visit of your plan year, you will probably need to pay the full price of the visit. What you pay for that visit will go toward your deductible.

The following month, your significant other needs to visit the doctor.

You’ll pay for that visit as well, which also goes towards the deductible.

Whenever you have paid out the full deductible amount, your insurance will kick in and begin to pay its portion for any healthcare services you require for the rest of your plan year.

You may be required to pay a copay or coinsurance (for example, you’ll pay for 30% of the services and your insurance will pay for 70%).

Not every health insurance plan will have a deductible.

In addition, the amount of the deductible will vary from plan to plan.

Typically, if the deductible is high, you will have a lower monthly payment. If the deductible is low, you will have a higher monthly payment.

Different Health Insurance Deductible Plans

When looking through the health insurance policy or when comparing plans, you may see different types of deductibles.

Here is what it all means:

• Comprehensive deductible. This means the deductible applies to all medical services (except for preventative health benefits).
• Noncomprehensive deductible. This deductible does not apply to certain medical services, such as routine checkups and physicals. The plan will cover those services whether you’ve met your deductible or not.
• In-network and out-of-network deductibles. These deductibles will match up with your plan’s network of approved healthcare providers. If you seek healthcare out of network, you may have higher deductibles, coinsurance amounts, and copays.  
• Prescription drug deductible. Some insurance plans have a separate deductible for prescription drugs.
• Individual deductible. This is the amount you, as an individual insured person, must spend before your plan will start to pay for your healthcare claims.
• Aggregate deductible. Some family insurance plans have this type of collective deductible. Any money that is spent on a member of the family for healthcare will go towards the collective family deductible.
• Embedded deductible. With this type of family deductible, each member of the family has an individual deductible, as well as a collective deductible. Each person will get their benefits as soon as their deductible is met. As soon as the family deductible is met, the insurer pays for all the members.

High deductible plans

A high deductible plan is true to its name.

The deductible is higher than a lower deductible, or traditional health plan.

While it make take several visits for you to meet your deductible, such plans do have some benefits:

• The monthly premiums for your plan can be lower. This is generally appealing to people who are healthy and who don’t anticipate many medical expenses.
• These plan types sometimes qualify to be paired with a health savings account (HSA). You can opt to have some of your pre-tax earnings go directly into your HSA. The money in your HSA account can then be used towards medical bills if you need it. The money in this account will roll over year to year if it is not used.

Such plans also have some cons:

•  If you experience a worst-case scenario or emergency, meeting the deductible could become a financial burden.
• Some people might skip making medical appointments or filling necessary prescriptions to avoid spending their HSA money. This could be a risk to their health.

Low deductible plans

A low deductible plan is just like it sounds—it has a low deductible.

After just a visit or two to the doctor, you may be able to meet the entire deductible for the policy year with such a plan.

Low deductible plans have some benefits:

• You’ll know that in a worst-case scenario or emergency that you won’t have to pay out a high amount of money toward the deductible.
• This plan type makes it easier to budget, or manage, your healthcare expenses. If you anticipate regular doctor visits or have a busy medical history, a low deductible plan might be the perfect fit.

Such plans also have some cons:

• They come with a high monthly premium.
• They might not qualify for an HSA account.

Services with a Health Insurance Deductible 

Some healthcare services will have deductibles, while some will not.

These can vary from plan to plan, and there are a few things that you can generally expect.

Usually, preventive services are covered.

Such activities include seeing your doctor for your annual physical or getting your flu shot.

Services that will typically have a deductible are diagnostic services or treatments.

These include services that diagnose, treat, and monitor an illness.

Sometimes, a doctor may perform diagnostic services during your routine checkup.

Speak with your doctor about which services you will be receiving during your visit, so you aren’t surprised by any charges later on.

Health Insurance Deductibles vs. Copays

Before you meet your deductible for your policy year, you will need to pay for most of your medical services out-of-pocket.

The money you pay goes towards meeting your insurance deductible.

Once that deductible has been met, your insurance benefits will kick in.

After that, if you need to see a doctor, go to the emergency room, or have another type of medical service, you might be asked to pay your health insurance copayment.

A copayment, also called a copay, is one of the ways you help pay for your medical services.

It is typically a fixed amount of money (for example $20) that you normally pay at the time of your visit.

Let’s say a doctor’s office visit is $100 under your health insurance plan’s allowable cost, and your copay is $20 for a doctor’s visit.

• If you have met your deductible, your payment for that visit will be a $20 copay.
• If you have not met your deductible, your payment will be $100.

The amount your copay will be varies for different services.

The copay for a doctor’s office visit might be different from your copay for a lab test or a visit to a specialist.

Health Insurance Deductibles vs. Out-of-Pocket Payments

We’ve covered the fact that a health insurance deductible is a set amount of money that you must cover for healthcare services before your insurance benefits will kick in.

This money comes out of your pocket to pay for those services.

Do all out-of-pocket expenses stop after the deductible is met? No, but there is a limit. 

We’ve also covered that after your deductible is met, you will still have a copay.

This is money coming out of your pocket.

Insurance plans place a limit on how much out-of-pocket money you will spend per year.

This means that when you reach your plan’s maximum out-of-pocket limit, the insurance company will pay 100% for covered services.

Keep in mind, not everything you might pay out-of-pocket for goes towards the out-of-pocket maximum. The following do not:

• Your monthly premiums
• Out-of-network services
• Costs above the allowed amount for a service that your provider may charge for

Saving Money

Now to the good part, how can you save more money?

First, choosing a plan that fits your needs will help you keep more of your money in your pocket.

If you don’t anticipate many medical expenses, a high deductible and lower monthly premium plan might be a good option for you.

If you do expect a substantial amount of medical bills, based on your or your family’s medical history, then choosing a plan with a lower deductible and high monthly premium could be your best choice.

Lower-income families might be eligible for help in lowering the cost of their monthly premiums or out-of-pocket expenses, with the deductible included.

These subsidies are available only for the Affordable Care Act (ACA) plans.

Families who make a modest income can also take advantage of the premium tax credit, which is a subsidy to help them afford their monthly premiums.

They can take advantage of this subsidy in two ways:

1. They can arrange for this credit to be paid to their insurance company from the federal government; 

or

2.  Families can claim the entire eligible amount of the credit in their annual tax return.

Eligibility for this tax credit requires the following:

• A family’s combined annual household income must be between 100% and 400% of the Federal Poverty Line.
• Family members must not be eligible for Medicare, Medicaid, TRICARE, or CHIP.
• Another person must not be claiming anyone from the family as a dependent.

The Cost Sharing Reduction is another subsidy helping modest-income families to afford the out-of-pocket expenses for their healthcare.

Under this subsidy, families can have the amount they must pay in deductibles, copays, or coinsurance lowered or covered.

To be eligible for these reductions there are two requirements:

1.  Families must be enrolled in a Silver Health Plan.
2. Families must have a combined annual income between 100% and 250% of the Federal Poverty Line.

How K Health Can Help

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