In a perfect world, your health insurance plan would cover every medical expense. Since that’s not usually the case, you might be on the hook for a deductible. By understanding what a deductible is and how it works, you can choose the right coverage for you and avoid unwanted financial surprises down the road.
What Is a Health Insurance Deductible?
A health insurance deductible is the amount you must pay out of pocket before your insurance company pays for the rest of your accrued health 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. In general, the higher your deductible, the lower your monthly premium, and vice versa.
“Basically, you’re hedging your bets as to whether you think you’ll need a lot of health care or you won’t use your insurance much at all,” explains Jonathan Kaplan, M.D., a board-certified plastic surgeon at Pacific Heights Plastic Surgery in San Francisco.
How Health Insurance Deductibles Work
Typically, deductibles are met on an annual basis, meaning they reset at the beginning of each year. “Let’s say your total medical care for the year equaled $3,000 and your annual deductible is $1,000. In this scenario, you would pay $1,000 out of pocket, and your insurance benefits would then cover the remaining $2,000,” explains Dr. Johnston.
She notes that if coinsurance (what you pay for covered health care after you meet your deductible) is involved, the remaining amount beyond the deductible is shared between you and the insurance company. “The industry standard for coinsurance is 20% for the insured and 80% for the insurer,” she says.
Imagine your coinsurance is 20%. You go to the doctor, and your plan’s allowed amount for an office visit is $100. If you’ve already met your deductible, you pay 20% of $100, or $20. If you haven’t, you pay the entire allowed amount of $100.
A 2020 study suggests deductibles come with both benefits and drawbacks. While they lead to a decrease in the use of various services and tend to be profitable for young and healthy people, they also result in higher of out-of-pocket costs and hospitalization rates over time.
Different Kinds of Health Insurance Deductibles
There are two types of health insurance deductibles, explains Dr. Johnston: individual and family. “An individual deductible means that the health insurance plan only covers one individual, and they’re responsible for their single deductible. A family deductible, on the other hand, is for anyone with more than one person on their plan and is broken into two common types: aggregate and embedded,” she says.
With an aggregate deductible, your family has to pay the deductible until the insurance company has collected your entire family deductible. With an embedded deductible, however, your plan starts to pay as soon as one member of your family meets their individual deductible.
How to Calculate, Manage and Monitor Health Insurance Deductibles
When you sign up for your health insurance plan, you can likely choose your preferred deductible and monthly premium. “Deductible options can vary and typically range from $250 per year to $7,500 per year,” says Dr. Johnston.
If you have an insurance plan with a deductible, Dr. Johnson recommends considering a health savings account (HSA) or flexible spending account (FSA) if your employer offers these options. By making contributions to these types of accounts, you can use pre-tax money to cover your medical expenses.
Regardless, you should closely monitor your spending against your annual deductible, which resets every year, cautions Darshak Sanghavi, M.D., global chief medical officer at Babylon Health. If you anticipate needing an expensive procedure that will force you to meet your deductible, then 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 Dr. 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 Dr. 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:
- Immunizations
- Blood pressure screenings
- HIV screenings
- Obesity screenings and counseling
- Tobacco use screenings
- Lung cancer screenings
- Fall prevention
Major Considerations for Health Insurance Deductibles
“For people who have enough savings to pay their deductible in the event of an emergency or who are relatively healthy, a high deductible plan may be cheaper annually due to lower monthly [premium] costs. For people with medical conditions that require frequent care, a lower deductible with a higher monthly cost makes sense,” says Bethany Malone, M.D., a colon and rectal surgeon at Fort Worth Colon and Rectal Surgery Associates in Fort Worth, Texas.
Of course, don’t be afraid to look around. “It’s wise to shop around and compare different plans and their respective deductibles, copays, premiums and prescription costs so you can find the right one for your unique situation,” says Dr. Sanghavi.
From: Forbes