Deductibles in health insurance are a complex matter, especially when comparing health insurance plans or trying to determine how much your current plan will pay for certain costs. Although deductibles generally work the same way regardless of the type of coverage they apply to, there are several different types of deductibles in health insurance.
What is a deductible in health insurance?
A deductible in health insurance is the amount of money you agree to pay for covered services before your health insurance company starts to pay. Once you reach this deductible, the health insurance company pays a portion of your healthcare costs. This is known as coinsurance, which can be split so that the insurance company pays 80% and you pay 20%. Instead of a deductible and coinsurance, some plans charge specific copayments, like $25 or $100, for prescription medications and office visits. Some plans have a $0 deductible for covered services.
Different types of deductibles in health insurance
Health insurance plans often have different deductibles associated with different coverage categories. While insurance policies vary, they share some common types of deductibles.
Individual deductible
An individual deductible is the amount that each person in the plan must pay toward covered services before the insurance coverage starts to pay for their healthcare. If you and your spouse are on the same health insurance plan with an individual deductible of $1,000, you would need to pay $1,000 toward your own costs, after which the insurance company will begin to cover some of your expenses.
Family deductible
While the individual deductible applies to what one person spends on healthcare, the family deductible applies to the expenses of all family members covered by the plan. It is usually double the individual deductible amount, regardless of how many family members are covered by the plan. If the family collectively spends up to the family deductible on covered services, the insurance policy will start paying for the covered services for everyone, even if some members do not meet the individual deductible.
In-network vs. out-of-network deductible
Many insurance plans include two additional types of deductibles: in-network deductible and out-of-network deductible. Because some plans, like Preferred Provider Organizations (PPOs), contract with a network of doctors to provide reduced-cost services, they tend to have higher deductibles if you choose to use out-of-network doctors. Individual and family deductibles often differ based on whether the services are in-network or out-of-network.
Deductibles on prescription medications
Depending on the type of plan, drug class, and whether the medications are from an in-network provider, medications may be covered by a specific copayment only, a coinsurance amount after the deductible, or a coinsurance amount with no deductible. The deductible applied can either be the larger deductible for the plan (individual or family) or a specific deductible for prescription medications that must be met before the policy covers any prescribed medications.
Out-of-Pocket Maximum
In addition to deductibles, copayments, and coinsurance, another important factor that affects how much you may pay with a health insurance policy is the out-of-pocket maximum. The out-of-pocket maximum sets the amount you can spend with that policy each year. For example, if you have a policy that sets an out-of-pocket maximum of $5,000, once you have paid $5,000 toward covered services, the policy will cover 100% of your covered care for the rest of the year.
Expenses that do not count toward the out-of-pocket maximum include premiums and costs not covered by your policy. Policies that impose higher premiums may have lower out-of-pocket maximums.
Questions
Frequently Asked Questions About Personal Costs and Deductibles
Since health insurance deductibles vary by plans and often differ even within the same plan, it is essential to understand the deductibles in your plan and how they can affect your personal healthcare costs.
To understand how much money you will ultimately spend out of pocket, ask your plan provider the following questions:
- What coverages are subject to the deductible?
- Are there any coverages that do not have a deductible?
- What coverages require copayment instead of a deductible?
- What coverages have copayment with no deductible?
- What are my maximum out-of-pocket expenses?
After obtaining these answers, you can determine which plans suit you best and see if a low-cost plan is ultimately worth it for your specific health needs.
Frequently Asked Questions (FAQs)
Should you choose a higher deductible in health insurance?
It depends. If you expect to use your health insurance plan frequently, it may be better to pay a larger amount upfront in premiums for lower deductibles and possibly lower out-of-pocket maximums. You don’t want to find yourself in a situation where you cannot afford to pay the deductible and thus cannot afford the costs. But if you have an emergency fund that can cover the deductible and do not use health insurance often, it might be a good idea – especially if you tie a high-deductible health plan to a Health Savings Account.
Why should you consider a Health Savings Account?
There are advantages to using a Health Savings Account (HSA) paired with a high-deductible health plan, especially if you have a substantial emergency fund and do not use health insurance often. Funds can be deposited into the HSA tax-free and withdrawn tax-free to pay for qualified medical expenses. Additionally, the funds in the HSA can be invested and can grow tax-free year after year. As long as the funds are ultimately spent on healthcare, they can be withdrawn tax-free.
Source: https://www.thebalancemoney.com/understanding-your-health-insurance-deductible-2645645
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