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Health Insurance Deductibles 101

Health Insurance Deductibles 101

Posted Nov 20, 2017 by Jenifer Dorsey

What is a Health Insurance Deductible + How Does It Work?

Welcome to Health Insurance Deductible 101. It’s time to get to know one of your health plan’s key components and better understand how health insurance works.

If you have an individual major medical insurance plan, you have a deductible. Whether you’ve recently gained coverage or had health insurance before, you may be a little uncertain about deductible basics. A lot of us are murky on the topic.

In a 2015 survey of young adults aged 19 through 30, half of the participants couldn’t define “deductible.”[1] Another survey found that nearly a quarter of individuals newly enrolled in health insurance plans didn’t understand what the term “deductible” meant—close to half of those who did not enroll didn’t understand it.[2]

Definition of deductible

Let’s start with a basic definition. A health insurance deductible is the dollar amount that an insured individual or family must pay for covered healthcare services each year before their plan benefits fully take effect.[3]

How a deductible works

You pay out of pocket for covered healthcare services until you reach your plan deductible. To illustrate, here’s an example:

Infographic showing how a health insurance deductible works

 

Some plans may cover certain services before you reach your deductible. Read your policy information for specifics and/or contact your health insurance provider with questions about your benefits.

What's the difference between an insurance deductible, copayment, coinsurance and out-of-pocket limit?

A deductible is the amount you pay for healthcare before your plan benefits take effect.

copayment (i.e., copay) is a flat fee you may have to pay at the time you receive healthcare. Your plan may have an office visit copay and a separate, urgent care copay, among others.

Coinsurance is the percentage of covered healthcare costs you pay after your deductible has been met.

And finally, an out-of-pocket limit (or maxium) is the most you have to pay for covered services in a plan year. After you've paid this amount in deductibles, co-payments and coinsurance your health plan pays 100% of the covered benefit costs. 

These are basic definitions. You can read more in our article “What is the Difference Between Coinsurance, Copay and Deductible?” And, as always, consult your health insurance policy or contact your health insurance company regarding your plan benefits.

Different types of deductibles

Not all deductibles are the same, and you will likely have more than one type, including the following:

  • An individual or family deductible, depending on whether or not you have an individual or family plan
  • An in-network and out-of-network deductible—separate deductibles for care received by network providers or out-of-network providers
  • A prescription drug deductible that must be met before pharmacy benefits apply

"High deductible health insurance plans" and what they mean for you

While any out-of-pocket deductible costs may seem relatively high to us as consumers, the Internal Revenue Service actually sets annual guidelines for what is legally considered a high-deductible health insurance plan.

These guidelines may not be important to you unless you plan to purchase a health savings account, in which case you must also purchase an HSA-qualified high-deductible health insurance plan that meets the following criteria.

For calendar year 2018, the IRS defines a high-deductible plan as one with an annual deductible of no less than[4]:

  • $1,350 for self-only coverage
  • $2,700 for family coverage

Also, the plan’s annual out-of-pocket expenses cannot exceed the following amounts[5]:

  • $6,650 for self-only coverage
  • $13,300 for family coverage 

Compare deductibles and premiums when buying health insurance

In general, the lower a health insurance plan’s monthly premium, the higher its deductible—and vice versa. It can be tempting to focus on the premium, but it's important to consider your potential out-of-pocket responsibility if you actually require medical care.

You typically won't know what treatment will cost until after the fact. The subsequent medical bills could be less than a $100 or up into the thousands or even more. If you have not yet met your deductible and used your coverage, these bills will likely be entirely your responsibility.

The next time you shop for health insurance, be sure to look for coverage that strikes a balance between a premium you can afford and out-of-pocket costs that you can pay.

Consider how much healthcare you need in a typical year and if you had a large claim whether or not you could pay out of pocket until your benefits took effect.

What if you can’t afford your Obamacare plan deductible?

It may seem counterintuitive, but buying additional insurance coverage could help if you have a high-deductible health insurance plan. Supplemental health plans can help reduce your out-of-pocket healthcare expenses.

Medical gap plans pay a lump sum benefit when a covered accident or illness occurs, and you can use the payment toward your major medical deductible, household expenses, childcare and more.

Telemedicine can help reduce the cost of care when you need to see a doctor and can also save you the time of traveling to and waiting at a clinic. The Telemedicine bundle available through healthedeals.com allows you to receive telehealth consultations for minor ailments such as a cold, sinus infections, allergies, pink eye and more—just $15 per consultation.

Working with a health insurance producer can help you find the right major medical plan and supplemental coverage for your budget and health. Call the number at the top of your screen to speak with a certified advisor who can answer your questions and assist you.

 

Worried about using your high deductible health insurance policy?

 

Originally posted May 16, 2016. Reviewed and updated Nov. 17, 2017.


Legal Disclaimers

[1] U.S. Department of Health and Human Services. “20 Million People Have Gained Health Insurance Coverage Because of the Affordable Care Act, New Estimates Show [Press Release].” March 3, 2016. http://www.hhs.gov/about/news/2016/03/03/20-million-people-have-gained-health-insurance-coverage-because-affordable-care-act-new-estimates

[2] Singh, Maanvi. “Defeat By Deductible: Millennials Aren’t Hip to Health Insurance Lingo.” NPR Morning Edition. June 16, 2015. http://www.npr.org/sections/health-shots/2015/06/16/414665468/defeat-by-deductible-millennials-arent-hip-to-health-insurance-lingo

[3] Centers for Medicare and Medicaid Services. “Glossary of Health Coverage and Medical Terms.” Accessed May 11, 2016. https://www.cms.gov/CCIIO/Resources/Forms-Reports-and-Other-Resources/Downloads/UG-Glossary-508-MM.pdf

[4] Internal Revenue Service. 26 CFR 601.602: Tax forms and instructions. Rev. Proc. 2017-37. https://www.irs.gov/pub/irs-drop/rp-17-37.pdf

[5] Ibid.