A health insurance deductible is one way that you pay for health coverage when you need medical services.
Health insurance deductibles affect not only how much you pay when you get health care, but also influence how your health insurance premiums. Health plans typically charge lower premiums for plans with higher deductibles and higher premiums for plans with lower deductibles.
What is a Deductible in Health Insurance?
A health insurance deductible is the amount you pay out of pocket before your insurance company pays a portion of your healthcare expenses.
“If your insurance plan includes a deductible, you’re 100% responsible for all of your medical costs until you reach your deductible,” says Janice Johnston, M.D., chief medical officer and co-founder of Redirect Health.
Deductibles are typically set annually, meaning they reset at the beginning of each year. If you have family coverage, you may have family deductibles or both individual and family deductibles, depending on the health plan.
Once you reach your deductible, a health plan’s coinsurance generally kicks in and the health insurance company helps pay a portion of your health care costs.
How Health Insurance Deductibles Work
Health plans usually calculate the money you spend on covered health care services, such as in-network doctor visits and tests, toward your deductible. Out-of-network care typically does not count toward your deductible.
Let’s say you go to the doctor and need tests. The total visit costs you INR 500. In that case, you would pay the bill and INR 500 would go toward your deductible. If your plan’s deductible is INR 1,000, you’re halfway there.
Once you reach your deductible, that’s when you need to know about coinsurance and out-of-pocket maximums.
How Do You Reach an Out-of-Pocket Maximum?
Health insurance plans have out-of-pocket maximums, which is the most you’ll pay in a year, including deductibles and coinsurance. Health insurance premiums don’t go toward your deductible or out-of-pocket maximum.
Once you reach your plan’s deductible, you and your health insurance company split the costs of care. This is called coinsurance and is usually a percentage, such as 20% or 80%. In this example, the member pays 20% of health care costs after the deductible is met and the health plan pays the other 80%.
You pay your portion of coinsurance until you reach the plan’s out-of-pocket max. Once you hit the out-of-pocket maximum, the health insurance company pays 100% of your health care costs.
Let’s look at an example.
- Your health plan has a INR 1,000 deductible, 20%/80% coinsurance and INR 5,000 out-of-pocket maximum.
- You need multiple health care services, including tests and an MRI, in the first months of the year. You pay the first INR 1,000 and reach your deductible.
- Over the next few months, you need outpatient care and spend a day in the hospital. You and your health plan use coinsurance to split those costs 20%/80% and you end up hitting your INR 5,000 out-of-pocket max.
- For the rest of the year, your health plan pays 100% of the health care costs when you need care.
Health insurance cost definitions
|The amount you pay at the time of health care services.
|The amount you must pay for health care services before your health insurance plan kicks in money.
|The percentage you and your health insurance plan pay for health care services once you reach your deductible.
|The amount of out-of-pocket costs you pay in a year before a health insurance plan pays 100% of your health care costs.
Different Kinds of Health Insurance Deductibles
Depending on your health insurance plan, you may have an individual deductible, a family deductible or a combination of the two.
If you have single coverage, an individual deductible calculates your health care costs. Once you reach that deductible, you head into the coinsurance portion and split health care costs with your health plan until you reach the out-of-pocket maximum.
A family plan may have individual deductibles as well as family deductibles.
Family coverage has two types of deductibles:
An aggregate deductible means your family has one total deductible for the whole family. There aren’t individual deductibles for each person in those plans.
An embedded deductible plan has a family deductible and individual deductibles for each family member. When one family member meets their individual deductible, the health plan splits costs through coinsurance for that individual’s care. The rest of the family still pays up to the individual deductible for their care.
An embedded deductible also has a family deductible. If the family combines to reach the overall family deductible, the health insurance plan pays coinsurance for the entire family until you reach the out-of-pocket maximum.
What’s a High Deductible Health Plan?
A high-deductible health plan (HDHP) is one with a deductible for single coverage or for family coverage. These plans have higher out-of-pocket costs and typically lower premiums, so you pay less for coverage but more when you need health care. A high-deductible health plan is often paired with a health savings account (HSA), which lets you save money tax-free for future health care needs.
HDHPs can be an excellent option for healthy people who don’t need much health care but can be costly if you need regular services or have a family plan with multiple medical needs.
Is High or Low Deductible Health Insurance Better?
Deciding if a high or low deductible plan is better often depends on how often you plan to need health care during the year.
Who benefits from high deductible health insurance?
|Who would benefit?
|Someone who is young and healthy
|You would save on lower premiums and likely won’t need to pay the higher out-of-pocket costs.
|A person who has the finances to easily cover unexpected out-of-pocket expenses
|You could save by paying a lower premium.
|You only need single coverage
|Single coverage limits the need for health care services if you’re healthy.
How to Calculate, Manage and Monitor Health Insurance Deductibles
One way to stay on top of your health insurance deductible is to closely monitor your spending against the plan’s annual deductible, which resets every year, cautions Dr. Darshak Sanghavi, global chief medical officer at Babylon Health, a health care company that specializes in 24/7 telehealth consultations.
If you anticipate needing an expensive procedure that will force you to meet your deductible, it’s in your best interest to schedule it early in the year.
Additionally, take advantage of the tools on your insurance company’s website and compare costs among doctors, recommends Sanghavi. “Some insurance sites also offer cost estimator tools that provide an individual the price they will pay among various providers for a CT scan or surgery,” he says.
What’s more, be sure you know which services are free in your insurance plan. “For example, preventative care and screenings are free and can help catch problems early on, leading to lower costs down the line, ” says Sanghavi. As long as the following services are performed by a provider in your plan’s network, you often won’t have to pay for them. This might include:
- Blood pressure screenings
- HIV screenings
- Obesity screenings and counseling
- Tobacco use screenings
- Lung cancer screenings
- Fall prevention
How Should I Choose a Health Insurance Deductible?
What’s a good deductible for health insurance depends on your health status and financial situation.
Choosing a health insurance deductible requires you to think about your current health care needs and what you expect in the coming year. Do you plan to have a child? Are you expecting to need surgery?
You also want to look at your finances. Can you afford unexpected health care costs if you need care or would you rather pay more predictable higher premiums upfront to have coverage?
If you’re healthy or have enough money set aside in savings to pay the annual deductible, a high deductible plan may be cheaper because of the lower health insurance premium costs. But if you have medical conditions that need frequent care, a plan with a lower deductible and higher premiums may make more sense.
Whether you get health insurance through your employer or the Affordable Care Act marketplace, you typically can choose between multiple options. Use health insurance open enrollment to explore your options.
Once you figure out your expected health care needs and decide whether you’d rather pay more upfront when you need care, you can choose the right health insurance deductible for you.