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Key takeaways
A deductible is the amount you pay out-of-pocket for healthcare services before your insurance starts to cover costs, applicable to health, auto, and home insurance policies, with the amount varying by policy and usually resetting annually.
Deductibles are designed to keep health insurance premiums more affordable, requiring policyholders to pay for routine procedures out-of-pocket, which allows insurance companies to charge lower monthly premiums for higher deductibles.
After meeting the deductible, insurance companies cover further healthcare expenses, though copays and coinsurance may still apply, and some preventive care services might be covered fully by insurance before the deductible is met.
When choosing a health insurance plan, it’s important to consider the balance between deductible and premium costs, alongside factors like network participation and covered services, to find a plan that best suits individual healthcare needs and financial situations.
Sometimes healthcare terms can seem like a whole different language. With words like copay, deductible, and out-of-pocket maximum being thrown around, how are you supposed to know what’s what? That’s where our Healthcare Defined series comes in. We break down insurance coverage terms so you can understand—and with understanding, comes better savings.
Let’s start with the commonly used word deductible. What is a deductible? Put simply, a deductible is the amount of money you have to pay out of pocket for healthcare services—which includes check-ups, surgery, and prescription medication—before your health insurance company pays for any medical expenses.
The term deductible is not only used for health insurance, but also for auto insurance or home insurance plans. The deductible amount varies depending on which insurance policy you choose and typically resets yearly in January. For some people, the deductible amount is set by the state or federal government, as is the case with Medicare.
Your deductible is one of several costs associated with your having health insurance, in addition to copays or coinsurance, and your monthly premium, which is what your insurance company charges you to participate in the plan. If you are in an employer-provided plan, your monthly premium may be taken out of your paycheck. If you are a person with Medicare, your premium may be withheld automatically from your monthly Social Security check.
What is the point of an insurance deductible?
Deductibles help keep the cost of having health insurance more affordable by having policyholders pay for routine procedures and smaller insurance claims out-of-pocket earlier in the year, while insurance companies pay for larger, more expensive healthcare procedures after the deductible is met. When your deductible is higher, you’ll usually pay a lower monthly premium. Because the insurance company initially pays out less for your claims with a higher deductible, it can afford to charge a lower monthly premium. The amount of each plan’s deductible is set by the insurance company, or the government, depending on what type of health insurance you have.
How do deductibles work?
Understanding how a deductible works can be a bit tricky. Let’s say your health insurance plan includes a $1,000 deductible. That means you have to pay $1,000 for your medical costs (in any given year) before your insurance company starts to pay some of your healthcare costs. Copayments (copays) aren’t typically applied toward your deductible; it varies by plan if payment for doctor visits and prescription drugs count toward your deductible or not.
So, after you’ve incurred and paid that $1,000, your insurance company will help cover any further expenses. These expenses could be lab work, in-office procedures, or surgeries. Sometimes people also are responsible for coinsurance, which is a consumer-paid percentage of healthcare costs usually after a deductible is met.
When you’re at the doctor, you may hear the phrase “subject to deductible.” This means that the doctor’s estimated costs do not take into account whether you have hit your deductible for the year or not. Some services may not be subject to the deductible and will be covered 100% by your insurance provider even before hitting your deductible. These services typically include preventive care, like yearly physicals or routine immunizations. Others may require you to pay more out of pocket if you haven’t hit your deductible for the calendar year.
What does a deductible mean for you?
When signing up for health insurance, take a moment to think about the deductible you choose. High-deductible health plans often come with lower monthly premiums and lower deductibles usually come with higher premiums.
If you find you make a lot of visits to the doctor in a year, consider a lower deductible, higher premium plan as you’ll hit your deductible a little bit sooner and your plan will pay more of your costs. If you rarely experience any health issues or didn’t meet your deductible the year before, consider a higher deductible, lower premium plan to get the best value for your money.
Consideration of premium and deductible amounts are among the many factors you should think about when choosing a plan. You should also consider whether your doctors participate in a plan’s network, and whether the specific medical services you require are covered, among other concerns.
RELATED: 5 health services to do after you’ve met your deductible
How to save money on health insurance deductibles
Cost-effective healthcare plans are available, but vary by state and income. Some people may be eligible for public benefits that might lower or eliminate deductibles. For people who aren’t eligible for these subsidies, employer-provided insurance plans typically offer the best cost savings, since you split costs with your employer. For more information on the best health insurance options for people who are self-employed, see here.
Another way to save is to write off medical expenses on your taxes. As of 2019, there is a medical expense deduction. If you tally up the dollar amount of all medical bills and they equal more than 7.5% of your annual gross income, you may be able to deduct them on your taxes. The only items that can be deducted are out-of-pocket costs that were not covered by your health insurance.
No matter the amount of your deductible, SingleCare offers savings on prescription medications. Simply search for your medication and compare our price to either the cash price or your insurance’s copay. Start saving today!
