What is a Health Insurance Deductible?
A health insurance deductible is the amount of money spent by an individual before their insurance begins to pay for medical bills.
Once a person has met their annual deductible, they are only responsible for copay rates for covered medical expenses.
The size of a deductible and what is or is not covered varies by health insurance plan. Suffice it to say that it is important to understand how deductibles work when shopping for health insurance.
Understanding How Deductibles Work
People enrolled in a health insurance plan pay a monthly fee called a premium for the right to be covered by the plan.
Simply being covered by health insurance usually provides for an annual checkup with a doctor, but the monthly premium doesn’t cover all expenses.
Most plans feature an annual deductible, which is the amount of money that must be spent out-of-pocket by the policy holder on medical costs before the insurance steps in to cover the bill.
For example, how much will a person pay if they have an insurance plan with a $1,000 deductible and they incur $5,000 in medical costs, assuming they haven’t yet used any of their deductible for that year?
In this case, the person would need to pay $1,000 for the deductible, and the insurance company would cover the remaining $4,000 of the bill.
If this person receives additional medical treatment in the same year, their insurance would cover the bill (except for copay rates) because they have already met their annual deductible from a prior medical bill.
Choosing the Right Health Insurance Plan
Generally speaking, health insurance plans can be lumped into three categories: low-deductible, high-deductible, and something in between.
Low-deductible plans are also referred to as full-coverage plans. These plans usually have higher monthly premiums but make up for it with low deductible requirements.
These plans are ideal for people who know they will have significant medical care needs and want to avoid paying out-of-pocket for large deductibles.
High-deductible plans usually come with lower monthly premiums. These plans are ideal for healthy people who do not foresee the need for medical care other than an annual checkup.
The logic is that if a person doesn’t incur medical expenses, they will save money with a high-deductible plan because they pay less in premiums. Being enrolled in a high-deductible health insurance plan also qualifies people to open health savings accounts, which are tax-efficient savings accounts that can be used to pay medical expenses.
Finally, there are plans that feature something in the middle. The graphic below summarizes the distinctions.
When choosing a health insurance plan, in addition to shopping for price, make sure the insurance provides access to medical care nearby.
Health insurance companies partner with healthcare providers to form “networks.” They do not provide the same level of coverage when you visit providers outside of their network. Therefore, it may actually be worth paying more for health insurance that provides more in-network options for where you live.