Most health plans have an annual deductible—the amount you are responsible for paying before your insurance starts to cover you. If you’re lucky, you’ll have a very low deductible, or even none at all.
In many ways, the deductible is what stands in between you and your full health insurance benefits. It’s like the first hurdle you have to clear before your health plan starts to give back those premiums you paid. So, managing your deductible is key to understanding your plan and saving money.
If you’re one of the many people who find it difficult to keep track of where they are on their deductible, you might try one of the new online services, like Simplee or Cake Health, which are designed to make this much easier. In this post, we’ll explain what a health insurance deductible is, what you need to know about them, and more. Use the links below to jump to the section that best answers your query, or read through for a more detailed overview on the subject.
What is a Health Insurance Deductible?
Health Insurance Deductible Definition: A health insurance deductible is defined by HealthCare.gov as the minimum balance you pay before your insurance company starts to cover medical costs. If your deductible is $2,500 and your medical visit costs $5,000, for example, you would be responsible for the $2,500 portion. In other words, you are responsible for paying a certain amount of your medical expenses yourself, and your insurance company will begin to cover costs only after you have paid that deductible.
How do Deductibles Work?
After you’ve met your deductible, your provider will typically only ask that you cover a portion through coinsurance or copayment while they handle the rest. Keep in mind, every insurance plan is different, so it’s important that you not only understand how deductibles work, but also how they fit into your plan specifically.
Certain insurance plans will cover services such as checkups or preventative care even before your deductible is met, so be sure that you know your plan details through and through before you do or do not seek care.
Example of health insurance deductible
Let’s take a look at an example of how deductibles work to get a clearer understanding:
Let’s pretend that you have a health insurance plan with a $700 deductible. One day, you require a medical procedure that costs $7,000, which is covered in your plan. Your health insurance provider will help pay for these costs, but only after you’ve met your $700 deductible. Here’s what happens next:
- You pay your $700 deductible out of pocket to the provider
- Then, after you meet the deductible, your health insurance plan begins to cover the remaining balance of $6,300
- Depending on your plan’s copay or coinsurance policies, you may still be required to pay a percentage of these costs
High-deductible plans vs. low-deductible plans
- High-Deductible Health Plans (HDHPs) have higher deductible rates than most insurance policies, but offer up some flexibility and tax advantages that can come in handy for some individuals, plus, HDHPs typically have lower monthly premiums. HDHPs come with a Health Savings Account or a Health Reimbursement Arrangement (HRA), a tax free account where you can deposit money specifically to be used for future medical costs. Aim to have saved in your Health Savings Account at least as much as the deductible. What counts as an HDHP? For 2021, the deductible is at least $1,400 for individual plans or $2,800 for family.
- Low-Deductible Health Plans typically have lower deductibles but lower monthly premiums than plans with higher deductibles. If you need a considerable amount of care or require expensive medical services, a low-deductible plan may be worth considering because your insurer will start covering costs at a lower rate than high-deductible plans.
Essential Things to Know About Your Annual Deductible
Enrolling in a healthcare plan can be an overwhelming experience — from unfamiliar terminology to crunching costs, there’s a lot to learn before you can find the best coverage for your needs. Whether you’re planning to enroll soon or just need to clear up some long-held confusion, here are some of the most important things to know about how deductibles work, and what you should know about yours.
1. How much is your deductible?
You should know how much your deductible is before you ever enroll in a plan. If the plan has a low premium, there is a good chance the deductible will be high. You should ideally have the money to pay your deductible ready on hand—or at least be saving for it. Remember, before your insurance company will pitch in for your medical expenses, you’ll need to pay the deductible you agreed upon first.
2. The date your deductible rolls over
Health insurance deductibles usually roll over every January, but some plans may use a different date—for example, health plans through schools or universities may use the academic year. This date is important because you may want to plan your appointments and procedures to occur after your deductible is met and before the year rolls over. Or, you may need to budget more money for the early part of the year.
Let’s say you have a $1,000 deductible and you meet it in June. Any other services you get for the rest of the year will only cost you copays or coinsurance. But if you wait until January, you will have to pay $1,000 all over again. You might consider scheduling bigger procedures before January to save you some cash if you are not planning other expensive services (that will again exceed $1,000) for the next year.
3. What doesn’t count towards your deductible
Many health plans waive the deductible for services such as preventive care or the emergency room fee if you are admitted to the hospital. Check your policy so you know where you get a free pass, and take advantage of it.
4. Whether you have different deductibles
Some plans have separate deductibles for in-network care versus out-of-network care. This could cost you more money unnecessarily if you’ve met one deductible and then see a doctor that counts towards the other. So, find out the rules and always check whether providers are in-network before you go (don’t make assumptions—doctors in the same office may not all take the same insurance).
If you have a family policy, check if there are separate or combined deductibles for each member that is covered. The rules can vary on this one, too.
5. How often you actually meet your deductible
Odds are, if you purchased health insurance, you hope that it will pay for the health care you use. So if you find that every year you come close to meeting your deductible but never do, you may be tempted to get a plan with a lower deductible so that you end up paying less out of pocket. Be aware, though: premiums for lower-deductible plans might be higher than you would end up saving. Make sure you consider the full cost spectrum of premiums, copays, coinsurance, and how much health care you expect to get that year when you weigh this decision.
Choosing the Right Deductible Amount
Now that you know how deductibles work, you may be wondering how you should choose the right deductible for your health care needs and financial situation. In this section, we’ll discuss some of the things you may want to consider as you evaluate your health insurance options.
Things to consider when assessing health insurance deductibles:
- Necessary coverage: Ultimately, the health care plan that you choose should empower you to get the best care for your needs. Whether you visit the doctor on a frequent or infrequent basis, your health history should be a primary part of your decision-making process. As you weigh your options, think about what the expenses that you’d be liable for would look like with a high, low, or middleroad deductible.
- Budget: Not only does your health insurance determine the kind of care you’re entitled to, but it’s also a major financial commitment. In addition to deductible costs, consumers are responsible for premiums and other out-of-pocket costs. Before selecting a health insurance plan, be sure to consider the full insurance terms as well as all of the costs you may be held responsible for.
Note: As you calculate your budget and insurance costs, don’t forget that there are ways to maximize your health care deductions to lessen the financial burden.
Tomer Shoval is the CEO and Co-Founder of Simplee, a free online personal health care expense management tool. Connect with him on twitter, facebook or email.