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How Do Health Insurance Deductibles Work?

The Cost of Insurance

In the expansive and often confusing world of health insurance, a lot of terms are tossed about. These words may be confusing to a first-time health insurance buyer or anyone trying to understand how health insurance works. In order to make the best choices for you, it’s important you understand the terms that affect how much money you must pay every month, and how much you pay when you use the insurance.

What Are Health Insurance Deductibles?

A health insurance deductible is a specified amount or capped limit you must pay first before your insurance will begin paying your medical costs. For example, if you have a $1000 deductible, you must first pay $1000 out of your pocket before your insurance will cover any of the expenses from a medical visit. It may take you several months or just one visit to reach that deductible amount.

You will pay your deductible payment directly to your medical provider. If you incur a $700 charge at the emergency room and a $300 charge at the dermatologist, you will pay $700 directly to the hospital and $300 directly to the dermatologist. You do not pay your deductible to your insurance company. Now that you have paid $1000 towards your deductible, you have “met” your deductible. Your insurance company will then start paying for your health insurance expenses.

Your deductible automatically resets to $0 at the beginning of your policy period. Most policy periods are one year long. After the new policy period starts, you will be responsible for paying your deductible until it is fulfilled. You may still be responsible for a copayment or coinsurance even after the deductible is met, but the insurance company is paying at least some amount of the charge.

Deductible vs. Premium

A health insurance premium is the amount you pay each month to your insurance provider. This is the only payment you will have if you never use your health insurance. You will continue to pay premiums until you no longer have the insurance plan. A deductible only has to be paid if and when you use the insurance.

Premium prices increase with each additional person you add to your insurance plan. If you are married and covering your spouse, your premium price will be higher than a single person with the same plan. If you are married and covering your spouse and two children, your premium price will also be higher than a single person or a married couple with the same coverage.

If you receive insurance through an employer, your premium is typically deducted directly from your paycheck. Many corporations will pay a certain portion of the premium. For example, your employer may pay 60 percent, and then the remaining 40 percent would be deducted from your paycheck.

Deductible vs. Copay

Your health insurance will begin paying for your healthcare expenses once you meet your deductible. You may, however, still be responsible for an expense each time you use the insurance.

A copayment is the portion of a medical insurance claim that you are responsible for paying. In most cases, a doctor’s office will request the copayment at the time of your appointment. Copayments are usually fixed, modest amounts. For example, you may be responsible for a $25 copay every time you see your general practitioner. This amount varies among insurance plans. In some cases, the copayment is not a set amount. Instead, you may owe a set percentage based on the amount your insurance will be charged for the visit.

For example, your copayment may be 10 percent of your visit’s charges. One visit may be $90. Another could be $400. For that reason, your copayment may change at each appointment. If you use a provider outside your insurance’s approved network, you may have a different copayment than you do when using a provider that is in network.

Deductible vs. Coinsurance

Some health insurances limit the percentage of your medical claims they will cover. You are responsible for the remaining percentage. This amount is called coinsurance.

For example, once your deductible is met, your insurance company may pay 80 percent of your healthcare expenses. You would then be responsible for the remaining 20 percent. Typical coinsurances range between 20 and 40 percent for the insured individual.

You do not begin paying your coinsurance until your deductible is met. If you use a provider outside your insurance’s approved network, your coinsurance amount may be different than if you had used a provider within the network.

Deductible vs. Out-of-Pocket Maximum

Your out-of-pocket maximum is the most you will pay during a policy period. Most policy periods are one year long. Once you reach your out-of-pocket maximum, your insurance plan will pay all additional expenses at 100 percent.

Your deductible is part of your out-of-pocket maximum. Any copayments or coinsurances are also factored into your out-of-pocket maximum. The maximum often does not count premiums and any out-of-network provider expenses. The out-of-pocket maximum is typically rather high, and it varies from plan to plan.

High- vs. Low-Deductible Plans

High-deductible, low-premium insurance plans have gained popularity in recent years. These insurance plans allow you to pay a small amount each month in premium payments. Your expenses when you use your insurance, however, are often higher than a person with a low-deductible plan. A person with a low-deductible plan, on the other hand, will likely have a higher premium but a lower deductible.

High-deductible insurance plans work well for people who anticipate very few medical expenses. You may pay less money by having low premiums and a deductible you rarely need. Low-deductible plans are good for people with chronic conditions or families who anticipate the need for several trips to the doctor each year. This keeps your up-front costs lower so you can manage your expenses more easily.

What’s the Right Deductible for Me?

The answer to this question depends largely on how many people you are insuring, how active you are, and how many doctor visits you anticipate in a year. A high-deductible plan is great for people who rarely visit the doctor and would like to limit their monthly expenses. If you choose a high-deductible plan, you should be good at saving money so that you are prepared to pay any medical expenses up front.

A low-deductible plan may be best for a larger family who knows they will be frequently visiting doctors’ offices. These plans are also a good option for a person with a chronic medical condition. Planned visits such as well visits, check-ups on chronic conditions, or anticipated emergency needs can quickly add up if you are on a high-deductible plan. A low-deductible plan lets you better manage your out-of-pocket expenses.

Talk with Your Insurance Provider

If you are trying to pick the right insurance for you, visit with a local health insurance provider. Many companies offer one-on-one guidance counseling to help you understand your options, weigh your risks, and select a plan that’s right for you.

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