With health insurance what is a deductible?

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In health insurance, a deductible is a fixed total amount of money you pay towards covered medical services, devices, or medications before your insurance company starts paying its part of the costs within the insured year.

It varies according to health plans but falls between the range of $0 for non-deductible plans to about $1,400 for high-deductible health plans (HDHP) for an enrollee.¹²

For instance, a health plan with a $1,000 deductible means you must pay up to a total sum of $1,000 within an insured year before your health plan benefits kick in. At this point, your insurance company starts paying part of your bills on covered services in line with your insurance plan.

It’s important to note that not all services are deductible. Healthcare plans usually cover routine checkups and preventive health services without cost to you even while you are yet to reach your deductible for that year. Immunizations, preventive health screenings like cervical cancer, and eye checkups for diabetics are some of the services you’ll expect to be covered at no cost.

How deductible works.

At the beginning of an insured year, your deductible is reset and you start by paying 100% of health services and medications covered by your insurance. These payments are what count towards meeting your deductible for the new year.

For example, if your deductible is $1,500 and you have reasons to visit a health facility for which you get billed $500 for services, you may have to pay out of pocket as your insurance benefits can’t be enjoyed at this point. With $500 paid leaves you with an outstanding sum of $1,000 to meet your deductible for the year.

You’ll go on paying all your bills on covered items or services and each additional payment is subtracted from the outstanding $1,000. Note that any payments made on services or items not covered by your insurance plan will not count towards meeting your annual deductible.

If at any point in the year, you have an outstanding sum of $80 towards meeting your deductible and your next bill sums up to $180. You’ll have met your deductible for that year and activated your insurance plan by being responsible for the $80 in the bill. The additional $100 debt will be shared between you and your insurer In line with the insurance policy.

If the policy states you’ll pay a coinsurance of 20% for the covered service then your insurer will be the one to pay the remaining 80% of the sum. In order words, your insurance company will be responsible for the payment of $80 of the $100 while you’ll pay the remaining $20.

Having met your deductible for that year, you’ll switch from paying all your bills on covered services to the payment of just a percentage of the costs. This is called coinsurance.

What amounts to your annual deductible varies significantly among health plans and Metal tiers.

Inability to reach your deductible in any given year would mean paying all your health care bills that year by yourself plus the monthly premiums. Share on X This is a reason you must be careful to select the right plan that’ll work for you.

Types of deductible.

Though insurance policies differ across the board, deductibles³ are common among health insurance plan carriers, and here are some of them.

Individual deductible.

Just as the name suggests, this is the amount an enrollee in a health plan must meet within an insured year on covered services for his/her insurance benefits to kick in. This does not extend to other members on the same plan.

For instance, if the individual deductible for a couple on the same insurance coverage is $1,000, any of the two who spend up to that amount on covered services will automatically have his/her insurance benefits activated.

The insurance company will start paying its part of the bill on covered services on that partner but it won’t extend to the other partner on the same plan.

The second partner will continue to pay for all the costs of the items that are covered on the plan until either the individual deductible or family deductible is met.

Family deductibles.

This is usually twice the individual deductible irrespective of family size. It could be either embedded deductible or non-embedded (aggregate).

Embedded deductible.

There are two components to this and it describes a situation where you have an individual deductible embedded in the family deductible. The insurance company begins to pay the bills on any member who has incurred bills on covered items up to the individual deductible. However, the rest of the family members enrolled in the same plan will go on paying out-of-pocket until the family deductible has been jointly met.

Non-embedded or aggregate deductible.

It is the amount all the members of a family on the same plan must jointly spend for the insurance benefits to kick in for anyone in the family that was enrolled in that plan. The company does not start paying its share of costs on covered services till the deductible amount has been met by the family.

The health savings account (HSA) is an example of a non-embedded deductible. Share on X

Since the size of a family doesn’t influence the deductible amount I think this plan is more advantageous for relatively large families. This is because the larger the size the easier it becomes to meet the deductible.

Be that as it may, any member of the family whose bills equal the deductible amount automatically activates the insurance benefits for everyone in the family that’s covered by the plan. So a family of three could still easily reach the deductible if a member in the plan is expected to spend that much within the year.

Network deductible.

Oftentimes, the network in which health services are delivered has a direct impact on the deductible amount. This is notably so with the preferred provider organizations (PPOs) that work with a pool of providers at agreed rates.

The in-network deductible is expectedly lower than the out-of-network deductible and it holds for every other type of deductible.

For instance, where the deductible amount for an individual plan is $1,500 for in-network, it could be $3,000 for out-of-network. This makes it important to enroll with a company that covers the area in which you live or usually requests medical services.

In-network deductible.

This is the deductible fixed for services rendered by providers within your insurer’s network. These healthcare providers offer health services and medications to the members of the insurance company at discounted rates. For this reason, costs are lower when you use the in-network providers hence the deductibles are also less.

Out-of-network deductible.

This deductible applies when you go out of network to seek health services. Insurance companies have no agreement on discounted rates for drugs and health services with out-of-network providers so literally do not influence what you get charged. For this reason, the deductible is higher as out-of-network providers usually charge more for their services.

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Prescription drug deductible.

These are different deductible amounts placed on prescription drugs based on a couple of factors like whether they were sourced in-network or out-of-network, the category of the drugs, and the type of health plan you bought.

In this regard, there may be different deductibles on drugs in one health plan. You’ll have to meet each of the deductibles for your insurance benefits to start on that particular aspect. It’s expedient to ensure your drugs are not only covered in the insurance plan you enrolled in but the deductible is also acceptable.

Your out-of-pocket expenses on prescription drugs will also be determined by these factors. Furthermore, you may have coinsurance after the deductible. There may also be coinsurance, copays without a deductible, etc.

Choosing the right deductible.

Deductibles vary widely among the different health plans available to you. Knowing which to choose could be mesmerizing and often people have had to rely on guidance from insurance experts.

Having a good evaluation of your health status and how frequently you see physicians is where to start. If you are mostly fit and healthy all year round with few hospital visits you likely won’t be able to pay enough bills that equal the deductible for most plans.

What this means is that you’ll end up paying all your medical bills out-of-pocket or you may not be able to reach your deductible early enough in a year, from year to year.

It happens that deductibles and premiums have an inverse relationship. A lower deductible will have you pay much higher premiums and vice versa.

Since you won’t likely incur enough health bills that equal your deductible early enough in a year, it may be better to opt for an insurance plan that lowers your monthly premiums instead. This could mean a high deductible health plan that gets you to pay lower premiums.

If on the other hand, you are the type that makes frequent hospital visitations, you’ll want to pull your insurer into sharing your bills as early enough as possible. For this reason, a low deductible plan may be better.

Furthermore, if you are expecting a procedure whose bill outstrips any deductible, then opt for a plan that covers the cost of that procedure. Most importantly, the deductible should be below the bill or is one that could be met soon enough to heap the extra bills on the insurance company.

For instance, if the procedure costs $1,200, a plan with a deductible of not more than $1,000 may make sense. It’s not always that easy to make the right choice as there can be pitfalls in what seems to be a great plan.

Those health insurance guys are pretty smart people and you need to be smart in dealing with them. There are professional government agents that could help you select the best choice at no cost so you may want to give them a try.

protesters demanding for no coinsurance — credit; Flickr under CC

Subject to a deductible and no-deductible health plan.

For service or prescription that’s subject to deductible, you’ll have to pay the full cost out-of-pocket if you haven’t met your deductible for that year. A percentage of the cost, called coinsurance, may be all you’ll have to pay if you’ve spent up to your deductible amount already.

You may not pay anything if you’ve spent up to what is called an out-of-pocket maximum for that year (some plans could still have you making copayments though). By then your insurer will be borne with the responsibility of footing all your bills up to the limit of your insurance policy.

On the other hand, a no-deductible health plan is one where the coinsurance and copayments, where applicable, kick off instantly. It’s suitable for people with ongoing high medical bills or those expecting to spend a lot of money on covered services within the insured year. In my opinion, the strategy should be to save costs by heaping as much of your health care costs as possible on the insurer.

Deductible, and no copay, or coinsurance.

Deductibles, copays, coinsurance, and premiums generally add to your out-of-pocket costs on any insurance plan.

Some plans may eliminate any of the first three or substitute one for the other but any plan will have a monthly premium attached.

A ‘no-charge after deductible’ describes a plan that excludes payments like coinsurance and copayments. What that means is that your insurer takes up all your bills after you’ve reached your deductible for the year just as is obtainable after one reaches an out-of-pocket maximum.

Copays⁴ is the amount you pay on the spot, out-of-pocket, each time you access certain services or fill a prescription. They don’t count toward your deductible. A health plan may have both the copay and deductible in its policy while others may have either of them like a ‘deductible and no copay’ plan.

A deductible and no copay policy is one in which you make no copayments. Share on X

There are instances when you don’t have a coinsurance after meeting your annual deductible amount. It’s not always as good as it seems as there may be other charges in that policy that make up for the absence of coinsurance. This is why accessing the services of insurance experts is important and could save you from costly mistakes.

Deductible vs. Insurance Premium.

Deductibles and monthly premiums are two fixed items in any insurance policy but they are inversely proportional in the sense that an increase in one leads to a decrease in the other.

Not all policies have deductibles but I’m not sure if there is one without premiums. They both add up to your out-of-pocket expenses so must be considered when choosing a plan.

A similarity between the two is that they are fixed and ongoing payments incurred throughout the year. There are a few differences as summarized in the table below.

Deductibles	Premiums
The sum of irregular payments.	Fixed regular payments billed monthly.
Not present in every plan.	Part of every health plan.
Have a fixed annual target or maximum.	No fixed maximum.
Alters out-of-pocket expenses after the max.	Fixed and doesn’t alter the out-of-pocket exp.
A plan could have multiple deductibles	There is only a single premium per plan.
Influenced by in-network and out-of-network service factors.	Not influenced by network factors.

Deductible vs. out-of-pocket.

Deductibles, where applicable, are part of your total out-of-pocket costs. Others are copays, coinsurance, monthly premiums, and bills paid on services or items that are not covered by your plan.

For health insurance plans that work with deductibles, there are fixed maximum amounts of total bills you pay called out-of-pocket maximum. Once this is reached, you stop bearing the full cost of charges on insured services. At this point, the company starts to pay its part of the costs while you pay a percentage called the coinsurance.

This out-of-pocket maximum doesn’t include payments like⁵

Out-of-network charges,
Insurance premiums,
Payments on not-covered services or items,
The extra charges above permissible amounts for any service.

However, not all plans have a coinsurance in the policy as there are “no charges after deductible” policies. In this case, the insurance company bears the full cost of your bills for the rest of the year till it reaches the limit of your policy.

Payments made by your insurer don’t always get to the limit of your policy before the year runs out but everything is reset at the beginning of each new year. For this reason, it’s good to choose plans in which you can meet your annual deductible as early as possible within the year.

You may want to learn about deductibles for the self-employed ⁶ or the cost of long-term insurance.⁷