What Is a Health Insurance Deductible?
A health insurance deductible is the amount of money you pay out of pocket for healthcare services covered under your insurance plan before your plan begins to pay benefits for eligible expenses. The amount you pay for a health insurance deductible is determined by the type of health insurance plan you have and your coverage benefits.
As a general rule, the higher your premium, the lower your deductible is likely to be. Similarly, a higher deductible can result in a lower monthly premium. Your monthly premium is the fee you pay on a recurring basis to your health insurance company to provide you with coverage.
- Your health insurance deductible is the amount you pay before your insurance plan's benefits begin.
- High deductible health plans carry higher deductibles, but they can offer access to health savings accounts, or HSAs, which can be used to pay future healthcare expenses.
- The amount you pay for your health insurance deductible correlates to what you pay for health insurance premiums.
How Health Insurance Deductibles Work
When you buy health insurance, you pay a monthly premium for your coverage. However, that isn't the only expense you'll have. Health plans usually include a deductible that you must pay before your insurance plan will start to cover your eligible healthcare expenses.
If your health insurance plan has a deductible of $3,000, for example, you will have to pay all of your eligible medical expenses until you have met that $3,000 deductible. At that point, your insurance will start paying for the services you use (although the amount it pays may not entirely cover the cost of care).
If you have individual coverage, you may pay one deductible for eligible healthcare expenses and another toward prescription drugs. If you have family coverage, you may pay individual deductibles for each person who's covered, as well as a family deductible for the policy. Sometimes an insurance plan will pay for certain covered services, such as preventive care, without requiring you to pay anything toward them to meet your deductible.
Health insurance deductibles are a way for insurance companies to reduce risk, says Larry Medcalf, an Indiana-based health insurance agent. "It's less money they have to pay out of their pockets," he says. Insurance companies also charge deductibles as a cost-saving measure. The logic is that anyone who is insured and has to pay out of pocket will think twice before using an emergency room or medical services if they don't need them.
Co-payments and coinsurance
When assessing health insurance coverage, it's also important to understand what the deductible does and doesn't cover. "Any approved medical charges that you pay out of pocket will usually go towards your plan's deductible for the year," Medcalf says. Co-payments are typically considered exceptions to this rule. Your co-pay is a set dollar amount that you pay for doctor visits, prescription drugs, or visits to an urgent care facility. These amounts may not count toward your deductible for the year.
Copayments—set amounts that you pay for doctor visits, prescription drugs, or visits to an urgent care facility—may not count toward your deductible for the year.
Co-payments are not to be confused with coinsurance, which is the amount you pay for medical services once you've met your deductible and your plan begins to pay. The amount you pay for your deductible, co-payments, and coinsurance all count toward your annual out of pocket maximum, which is the maximum amount you'll pay before your insurance plan begins paying 100%.
Average Deductibles and High Deductible Health Plans
In 2018, the average health insurance deductible for Americans covered by an employer's healthcare plan was $1,350. That applies to single-person coverage and is the minimum threshold for a high deductible health plan (HDHP). These plans carry higher deductibles, but they offer a trade-off in the form a health savings account (HSA) that can be used to save for future health care expenses on a tax-advantaged basis.
The key benefits of an HSA linked to a high deductible health plan include tax-deductible contributions, tax-deferred growth, and tax-free distributions for qualified medical expenses. To qualify as a high deductible health plan, the minimum deductible for single coverage must be $1,350 or higher for 2019, or $2,700 or higher for family coverage.
The minimum deductible for family coverage to qualify as a high deductible health plan in 2019. The minimum deductible for single coverage is $1,350.
Comparing Health Insurance Deductibles
When comparing health insurance plans, it's helpful to weigh the amount of the deductible, what your plan covers, and how often you need medical care. If you don't see the doctor that often, it's possible that you may not meet your plan's deductible for the year based on what you spend out of pocket for health care. In that scenario, you'd have to consider whether it would make more sense to opt for a plan with a higher premium to get a lower deductible or vice versa.
Also, if you're married, compare the deductible for your spouse's health insurance coverage and how that deductible might change if you decide to add yourself to their insurance on a family plan. Depending on how their plan is structured, it may be more or less affordable to go from single to family coverage.
Health Insurance Deductibles and Marketplace Plans
If you're getting health insurance through the federal marketplace, compare the different tiers to determine which one is best. The four tiers available are Bronze, Silver, Gold, and Platinum. (There's also a Catastrophic plan that has a very high deductible—$7,900 in 2019—for people under age 30 or those who have a hardship or affordability exemption.) At the Bronze level, you would typically have the lowest monthly premium, but you'd likely pay the most for deductibles among the four plans. At the other end of the spectrum, a Platinum plan would offer the most coverage for healthcare plus the lowest deductible.
That could be good if you have higher costs for things like routine care, specialists, or prescription drugs. The trade-off is that Platinum plans will be most expensive with regard to premiums. Also, determine whether you qualify for any cost-sharing discounts. You must enroll at the Silver level or higher, but if a cost-sharing reduction is available, this can discount the amount you pay for your deductible, co-payments, and coinsurance.
If you don't think you'll meet the plan's deductible for the year, it's possible to negotiate lower rates for care if you decide to self-pay instead of using your insurance coverage. Doctors, hospitals, and other healthcare providers may be willing to offer services at a reduced rate if you'd prefer to pay out of pocket. It's just a very big risk to take if you end up having a health emergency.