What Is a Health Insurance Deductible?
A health insurance deductible is a set amount of money that an insured person must pay out of pocket every year for eligible healthcare services before the health insurance plan begins to pay any benefits.
The amount of the deductible varies depending on the health insurance plan you choose. As a general rule, the higher the monthly premium you pay, the lower your deductible will be. Your monthly premium is the amount you pay to a health insurance company to provide you with coverage.
Even after you pay off your deductible for the year, you may still have to pick up some of your healthcare costs. Most insurance plans have co-payments, which require the insured to pay a set dollar amount as their share of the cost of some services. Most also have coinsurance payments, which make the insured responsible for a set percentage of the total cost of some services.
- Your health insurance deductible is the amount you pay before your insurance plan's benefits begin for the year.
- High deductible health plans require the insured person to pay more upfront, but the monthly premiums should be lower than what you would pay for a lower deductible.
- The deductible is separate from the co-pay, which is the share you may have to pick up for some services. There also may be coinsurance payments. That is the insured person's share of a healthcare cost.
- Many of those with high deductible health plans can offset some of the costs by setting up a health savings accounts, or HSA.
- People with lower incomes may be eligible for federally subsidized health care available under the Affordable Care Act.
How Health Insurance Deductibles Work
When you buy health insurance, you pay a set monthly premium for one year of coverage. At the end of the year, you may continue your coverage, although the insurer may revise the premium amount at that time.
Each year of coverage sets the deductible clock ticking. If your deductible is $1,000, for example, you must pay your own expenses up to that amount. After that, your medical expenses are covered, minus any co-payment you owe for those expenses.
How Deductibles Differ
Your plan might have a number of different deductibles for various services. If you have individual coverage, you may pay one deductible for most of your healthcare expenses and another toward the cost of prescription drugs. If you have family coverage, you may pay individual deductibles for each person covered as well as a family deductible for the policy.
Many insurance plans pay for certain preventive care services without requiring you to pay any deductible or co-pay. Routine mammograms for women age 40 and over, for example, are covered in full with no deductible or co-pay. This is a federal requirement for new plans.
Insurance companies charge deductibles in part 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 really need them.
Americans who have health insurance must pay between 10% and 40% of their own annual healthcare costs, depending on whether they go for a higher-premium or a lower-premium plan.
Co-Payments and Coinsurance
Once you pay off the deductible your health insurance plan will pick up your medical costs, with a couple of exceptions.
Co-payments are one exception. Your co-pay is a set dollar amount that you may pay for a doctor visit, a prescription, or a visit to an urgent care facility. These amounts may not count toward your deductible for the year, and once you pay off your deductible you'll still have to pay them.
Co-payments are not the same thing as coinsurance. The latter is the percentage of a bill for a medical service that you will be responsible for paying after you've met your deductible.
Examples of Co-Payments and Coinsurance
Here are two examples:
- A co-payment of $30 may be due when you have an office visit with a doctor.
- A coinsurance share of 10% may be due if you are treated in an emergency room.
The amount you pay for your deductible, co-payments, and coinsurance all count toward your annual out-of-pocket maximum, which is the total you must pay before your insurance plan begins paying 100%.
The maximum out-of-pocket annual cost, as of 2021, is $8,550 for an individual plan and $17,100 for a family plan.
Average Deductibles and High Deductible Health Plans
In 2020, the most recent year for these figures, the average cost of a high-deductible health plan for an individual was $4,971 a year while the average cost for a low-deductible plan was $7,816.
This is how much the average American paid for health care premiums and deductibles as of the end of 2020:
- The average health insurance premium for a plan offered under the Affordable Care Act was $456 for an individual and $1,152 for a family. The numbers do not take into account any subsidies for coverage that were received by lower-income people.
- The average annual deductible was $4,364 for an individual and $8,439 for a family, according to the latest figures available, from 2019.
- People who were covered by company health plans paid an average deductible of $1,655.
These figures do not include copayments or coinsurance.
- Copayments are the insured person's share of the costs of some services. For example, a $30 co-payment for a routine doctor's visit is common.
- They also do not include coinsurance. These are similar to copayments but are a percentage of the cost rather than a set dollar amount. For example, if your plan covers 90% of a hospital stay, you will be responsible for 10% of the costs.
If you're shopping for a health insurance plan, each plan you're offered will include a full list of that plan's co-payments and coinsurance. Most insurers will offer high-, medium-, and low-deductible plans, each with its own details.
The minimum deductible for family coverage to qualify as a high deductible health plan in 2021. The minimum deductible for single coverage is $1,400.
Comparing Health Insurance Deductibles
As you can see, there's a substantial difference in the monthly premiums of high deductible versus low deductible healthcare plans. However, the real out-of-pocket costs of any plan include the premium, the deductible, and any coinsurance.
The amount anyone pays in out-of-pocket expenses depends on the individual's health profile. A young and healthy person who rarely goes to a doctor might gamble on a high deductible plan with high coinsurance costs. Someone who requires regular treatment for a chronic condition might go for a higher-level plan to minimize deductible and coinsurance costs.
If you're in good health and have no health issues, it's possible that you may not even spend enough to meet your plan's deductible for the year. You'd have to consider whether it would make more sense to opt for a plan with a lower monthly premium and a higher deductible.
If you're married, you may also need to compare the deductible for your spouse's health insurance coverage and how much it would be if you opted to add yourself to the spouse's insurance. Depending on how the plan is structured, it may be more affordable to go from single to family coverage.
If you're getting health insurance through the federal marketplace or any of the state marketplaces, you can compare the coverage of four distinct tiers to determine which one is best for you.
Health Insurance Deductibles and Marketplace Plans
The plans offered directly by insurers are similar to those that are available in the health insurance marketplaces that the federal government and many states have made available under the Affordable Care Act. The marketplaces offer four tiers of insurance plans:
- The Bronze plan, with the lowest monthly premium, covers an average of 60% of health costs.
- The Silver plan has a higher monthly premium and covers an average of 70% of health costs.
- The Gold plan has a higher monthly premium than the Silver plan but covers 80% of health costs.
- The Platinum plan has the highest monthly premium and the highest level of coverage at 90%.
Notably, 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.
When comparing health insurance plans, the important factors are the amount of the deductible, the coverage provided in the plan, and how often you need medical care.
Pricing for all of the plans depends on your age, whether you smoke, and where you live. The state in which you live determines the companies that offer to insure you and the price you'll pay.
At the Bronze level, you would typically have the lowest monthly premium, but you'd pay the highest deductible. At the other end of the spectrum, a Platinum plan would offer the most coverage for healthcare plus the lowest deductible.
The Platinum plan could be a good choice if you have high costs for routine care, specialists, or prescription drugs. The trade-off is that the plan will have an expensive monthly premium.
Those who get their insurance through the federal marketplace are automatically evaluated for their qualification for any cost-sharing discounts based on income. You must enroll at the Silver level or higher, but if a cost-sharing reduction is available, this will reduce the amount you pay for coverage.
What Is the Medicare Part A Deductible?
The Medicare Part A deductible is $1,484 for 2021. It pays inpatient hospital stays, nursing care, and hospice care. Most people do not pay a monthly premium for Part A coverage. There are no coinsurance costs for hospital stays of 60 days or less.
What Is the Medicare Part B Deductible?
The Medicare Part B deductible is $203 for 2021. Most Medicare participants also pay a monthly premium for Part B, set at $148.50 for 2021.
Medicare Part B covers doctor's visits, tests, flu shots, physical therapy, and even chemotherapy. It's basically all healthcare costs that don't involve hospitalization or prescription drugs.
Is There a Deductible for Medicare Part D?
Medicare Part D is coverage for prescription drug costs. It's an optional extra for Medicare and is available through private insurers, although you can sign up for it through the Medicare.gov website.
The insurers who offer Part D coverage can be located via the Medicare.org website's Medicare Plan Finder.
Do You Pay a Deductible with a Medicare Advantage Plan?
Yes. The Medicare Advantage Plan is one of two alternatives for Medicare recipients who want to supplement the coverage they receive. Both are available through private insurers.
Medicare Advantage Plan
A Medicare Advantage Plan replaces your Medicare card with a private insurer's Medicare Advantage Plan card. That insurer manages your Part A, Part B, and (optional) Part D services and costs.
Its coverage has its own premiums, co-payments, and coinsurance costs.
It will offer additional coverage and additional services at an additional cost. The costs vary widely, as do the options for coverage.
Medicare Supplement Insurance, known as Medigap, covers some of the deductibles, coinsurance, and co-payments due for Medicare services.
For example, you can choose a Medigap plan that has a low monthly premium but requires you to pick up the deductible every year. But if you're hospitalized for more than 60 days, it will pick up your share of the costs.
The Bottom Line
If you're choosing a healthcare plan, and want to compare their costs, you need to do some addition: monthly premium plus co-payments plus coinsurance equals your total annual out-of-pocket costs of that plan.
Of course, you probably can't estimate how many doctor's visits you will need in the coming year, and you don't know whether you will face a serious illness or injury.
So go with what you know. If you're young and generally healthy, you might take a high deductible plan. Be prepared to foot much of the bill if you become really ill.
If you have a recurring health problem that requires routine treatment by specialists, consider the low deductible plan. You'll pay a higher premium but should get a break on the deductible, co-payments, and co-insurance costs.