What is a Health Insurance Deductible (or Health Insurance Deductible)?
An insurance deductible (or health insurance deductible) is an amount that an insured person must pay from their own pocket each year to receive eligible healthcare services. This prevents the plan from paying any benefits.
The amount of your deductible will vary depending on which type of health insurance you choose. The deductible is generally lower the higher your monthly premium. Your monthly premium is how much you pay to your health insurance company for coverage.
You may still need to pay some of your healthcare expenses even after you have paid your deductible for the year. Many insurance plans include co-payments. These require that the insured pay a fixed dollar amount to cover the cost of certain services. Many insurance plans also include coinsurance payments. These make the insured responsible to a certain percentage of the cost of some services.
KEY TAKEAWAYS
- Your health insurance deductible refers to the amount that you have to pay before your plan’s benefits start for the year.
- High-deductible health plans mean that the insured person must pay more upfront, but monthly premiums should not exceed what you would pay to have a lower deductible.
- The deductible and the co-pay are separate. This is the amount you will have to pay for certain services. Coinsurance payments may also be available. This is the insured person’s portion of healthcare costs.
- A lot of people with high-deductible health plans have the option to offset some of their costs by opening a Health Savings Account (HSA).
- Federally subsidized health insurance may be available to those with lower incomes under the Affordable Care Act.
How do health insurance deductibles work?
You pay a monthly premium to cover one year of health insurance. You may keep your coverage after the year ends, but the insurer could increase the premium amount.
The deductible clock starts to tick each year that you have coverage. For example, if your deductible is $1,000 you will need to pay for your expenses up to this amount. Your medical expenses will be covered after that, less any co-payments.
How deductibles differ
You might have several deductibles depending on the service you are using. Individual coverage may have a deductible that covers most of your healthcare expenses, and a deductible that covers prescription drugs. You may have to pay individual deductibles for each member of your family, as well as a family policy deductible.
Some insurance plans cover certain preventive services without you having to pay a deductible or copay. Routine mammograms are fully covered for women over 40 years old, with no co-pay or deductible. This federal requirement applies to all new plans.
In part, insurance companies charge deductibles as a cost-saving measure. This logic is to ensure that people who are insured will not pay out of pocket for medical services or emergency rooms if they don’t need them.
Co-Payments & Coinsurance
After you have paid the deductible, your health insurance policy will pay for your medical expenses. There are a few exceptions.
One exception is co-payments. The copay is an amount you pay to cover a doctor’s visit, prescription or visit to an urgent care center. These amounts will not count towards your deductible for the current year. However, once your deductible is paid off, you’ll still need to pay them.
coinsurance is not the same as co-payments. This is the amount you are responsible for paying for a bill for medical services after you have met your deductible.
Examples of Co-Payments and Coinsurance
Take, for example:
- You may have to pay a $30 co-payment if you visit the doctor in person.
- If you’re treated in an emergency department, a 10% coinsurance contribution may be required.
Your annual out-of pocket maximum is the amount you have to pay before your insurance policy begins paying 100%. It includes your deductible, copayments and coinsurance.
As of 2021, the maximum annual out-of-pocket cost is $8,550 for an individual and $17,100 if you have a family plan.
Average Deductibles & High Deductible Health Insurance Plans
2020 was the year in which the average cost of a high deductible health plan was $4,971 per annum, while that of a low-deductible plan was $7.816.
This is the average American’s total cost for health insurance premiums and deductibles at the end of 2020.
- The Affordable Care Act offered a health insurance plan that cost $456 per person and $1,152 per family. These numbers don’t include subsidies that were available to lower-income individuals.
- According to the most recent figures, in 2019, the average annual deductible was $4364 for an individual, and $8439 for a household.
- Average deductible for people who had company-sponsored health plans was $1,655.
Other costs
These numbers do not include copayments and coinsurance.
- The copayments represent the insured person’s portion of certain services. A $30 copayment is typical for routine doctor’s visits.
- These do not include coinsurance. They are similar to copayments, but they are a percentage of the total cost and not a dollar amount. If your plan covers 90% of hospital stays, 10% will be your responsibility.
When you are shopping for health insurance, every plan that you are offered will contain a complete list of the plan’s copayments and coinsurance. Many insurers offer a variety of plans with different deductibles.
Compare Health Insurance Deductibles
As you can see there is a significant difference in monthly premiums for high-deductible and low-deductible plans. The real out-of pocket costs of any plan are the premium, deductible and coinsurance.
The individual’s health status will determine how much they pay in out-of pocket expenses. If a young, healthy person is not likely to visit a doctor regularly, they might choose a plan that has a high deductible and high coinsurance. To minimize coinsurance and deductible costs, someone who is regularly treated for a chronic condition may opt for a higher-level plan.
Considerations for the Personal
It’s possible to not spend enough money each year to cover your plan’s annual deductible if you are in good health. It would be worth considering whether it makes more sense to choose a plan that has a lower monthly premium but a higher deductible.
You may need to look at the deductible on your spouse’s coverage as well as the cost of adding yourself to your spouse’s insurance. It may be cheaper to add family coverage to your existing plan depending on the structure of your plan.
You can compare four tiers of coverage if you are looking for health insurance through either the state or federal marketplaces.
Marketplace Plans and Health Insurance Deductibles
Insurers offer plans that are identical to the ones that are offered in the marketplaces for health insurance. These plans are made available by the Affordable Care Act, which is a federal law that allows many states and the federal government to make available. There are four levels of insurance plans offered by the marketplaces:
- The Bronze plan has the lowest monthly premium and covers 60% on average for health care costs.
- The Silver plan covers 70% on average and has a higher monthly premium.
- The monthly premium for a Gold plan is higher than that of a Silver plan, but it covers 80% of your health care costs.
- The Platinum plan offers the highest monthly premiums and coverage of 90%.
(A Catastrophic Plan also has a high deductible, at $7,900 in 2019, for people under 30 years old or who qualify for a hardship exemption or affordability.
Comparing costs
The most important aspects to consider when comparing health insurance plans are the amount of your deductible, the coverage offered in the plan and how often you require medical care.
Prices for all plans depend on your age, where you live, and whether or not you smoke. The price and state you pay will determine which companies offer you insurance.
The Bronze level would have the lowest monthly cost, but the highest deductible. A Platinum plan offers the best coverage and the lowest deductible.
If you are looking for high-quality routine care, specialist or prescription drug coverage, the Platinum plan might be an option. However, the monthly premium will be high.
Federal marketplace customers are automatically assessed for eligibility for cost-sharing discounts that may be available based on their income. While you must be enrolled at the Silver level or above, if there is a cost sharing reduction, this will reduce your coverage costs.
FAQs on Deductible
These are some frequently asked questions regarding insurance deductibles.
What is the Medicare Part A Deductible and How Does It Work?
For 2021, the Medicare Part A deductible will be $1,484.
Medicare Part A covers inpatient hospital stays, nursing and hospice care. The majority of people don’t have to pay a monthly premium to Part A coverage.
Hospital stays for less than 60 days are exempt from coinsurance.
What is the Medicare Part B Deductible
Medicare beneficiaries also have to pay a monthly premium of $148.50 per month for Part B. This amount will be in place through 2021.
Medicare Part B includes doctor’s visits and flu shots. It also covers physical therapy, chemotherapy, and tests. This covers all healthcare costs, except for hospitalization and prescription drugs.
Is there a Medicare Part D Deductible?
Medicare Part D covers prescription drug costs. This optional supplement to Medicare is only available through private insurances. However, you can sign up through Medicare.gov.
Are you required to pay a deductible when you enroll in a Medicare Advantage plan?
Yes. Medicare Advantage Plan is an option for Medicare beneficiaries who wish to add on to their coverage. Both options are available through private insurance.
Medicare Advantage Plan
Your Medicare Advantage Plan replaces the Medicare card you have with a private insurance company’s Medicare Advantage Plan card. This insurer will manage your Part A, B, and (optional), Part D costs and services.
The coverage comes with its own premiums and co-payments.
You will get additional coverage and services for an additional fee. There are many options available for coverage and the costs can vary.
Medigap Plans
Medicare Supplement Insurance (also known as Medigap) covers some of the co-payments and deductibles required for Medicare services.
You can, for example, choose a Medigap policy that has a low monthly cost but you must pay the deductible each year. If you are hospitalized for longer than 60 days, the Medigap plan will pay your share.
The bottom line
You can compare the costs of different healthcare plans by adding: your monthly premium plus copayments plus coinsurance will equal your annual out-of pocket costs.
You can’t predict how many doctor visits you’ll need over the next year and whether you’ll be dealing with serious illness or injury.
Keep your head down and do what you know. A high-deductible plan might be a good option if you are young and in good health. If you are really sick, be prepared to pay a lot of the bill.
Consider the low-deductible plan if you have a chronic health condition that needs to be treated by specialists. While you will pay more for the premium, you should be able to get a lower deductible, copayments, or co-insurance cost.
