1. Introduction: Understanding Health Insurance Deductibles
Under the definition of health insurance deductibles insurance provides coverage before policyholders meet their obligation to pay the specified amount first. The misconception exists that people must pay all medical costs by themselves prior to receiving insurance support stands incorrect. The patient’s deductible does not prevent insurance coverage from applying to preventive care and doctor visits with associated copay costs.
Medical costs will continue to depend heavily on your health insurance deductible amount despite this regulatory condition. People with both high deductible health plans (HDHP) and low deductible health insurance plans can use understanding of the systems to keep costs low. I will explain the details in basic language to allow you select a suitable insurance plan.
2. What Is a Deductible in Health Insurance? (Simple Explanation)
2.1 Definition of a Deductible in Health Insurance
A deductible, as the phrase suggests, is the amount an individual has to pay for his/her medical expenses before the insurance commits to bearing part of the costs. It means there is this “efficient” like a “threshold” up to which the insurance exists for most services.
For example:
- In case your health insurance enables you to have a deductible of $ 1500 this means that you are expected to foot the bill amounting to this value in eligible medical expenses before the insurance is able to pay a given percentage of the bill.
- However, he or she may have some other costs such as copayment for doctor visits, or preventive services that will not go in the computation for the deductible.
2.2 How a Deductible in Health Insurance Works
For the sake of this example let’s say you now have a $1 000 deductible and a hospital bill of $ 2 500.
- You contribute 1000$, which is your cost-sharing minimum amount also known as the deductible.
- After that, your insurance contributes the rest of $1,500, commonly under the coinsurance system, examples being $ 80/ $ 20 meaning that the insurance will pay 80% and you, 20%.
Therefore, if your plan has an expiration date for both the coinsurance percentage and the eligible expenses, you will have to keep paying for covered services up to the out-of-pocket maximum’s expiration date.
2.3 In this context, let us dig deeper into the two; Deductible and Premium by defining and explaining their differences as discussed below:
However, many people do not differentiate between deductibles and premiums as they are two different things.
- Premiums: This refers to amount paid every month towards acquiring health insurance.
- Co-payment: The portion of the cost of an insured health service that the insured person has to contribute out of his pocket before being reimbursed.
- Pro tip: High benefit plans generally have low premium rates and low benefit plans often have high premium rates per month.
How Does a Deductible Work? (Step-by-Step Guide with Examples)
If you believe that the only thing which you are charged with before your insurance policy comes in to play is the health insurance deductible, then you are not the only one. Most people indeed believed that after meeting the medical insurance deductibles, everything is fully paid by the insurance. But that’s not always true!
Your deductible is only one aspect of the insurance equation that has to be understood. But that is not the end; there is still coinsurance, copayment plans as well, as well as out of pocket maximum. So, bear with me in simple steps and it’s clear as to how a deductible works in health insurance.
3. How Does a Deductible Work? (Step-by-Step Guide with Examples)
3.1 Step 1: Paying for Medical Services before Hitting Your Deductible
The majority of medical costs are paid by you when have not yet met your deductible.
For example:
- The price of the health insurance plan is $3,500 and with this, your deductible is $1,500.
- You go to the doctor and the cost that you incur is $300.
- Till the time you have not met your deductible, you are obliged to pay the full amount, in this case $300.
- Your balance of the deductible is now $1,200.
- Important to remember: depending on a certain plan, some of the preventive care services such as vaccination and screenings may be paid for before the deductible is met.
3.2 Step 2: Meeting Your Deductible
It means that after you have incurred eligible medical expenses that sums up to the value of your deductible amount, then the insurance will begin contributing towards the payments.
Example:
- You had previous bills of $1,200.
- You receive another medical bill of four hundred dollars.
- You are responsible for $300 to meet up the total $1,500 required deductible.
- Now, insurance takes care of contributing towards the medical expenses in proportionate to the insurance cover acquired by you.
3.3 Step 3: Coinsurance Kicks In
After what is termed as the deductible, cost sharing with the insurance firm is usually done through coinsurance.
For example, let your coinsurance be 80/20 which means that the insurance company will bear 80% of the amount of the bill while the rest is taken care of by the insured individual.
• You get a $1,000 hospital bill.
• Your insurance pays 80% = $800.
• You pay 20% = $200.
Your coinsurance will also remain at $20 until you meet your out of pocket maximum after which the insurance will cover all the remaining costs of your covered treatments.
4. Types of Health Insurance Deductibles
Not all the types of deductibles apply in the same manner as the following are discussed below. Now it is time to view various types of health insurance deductibles and how they can affect your expenses.
4.1 Individual vs. Family Deductibles
If you have taken a family health insurance policy then you are probably to come across two different deductibles.
- Individual Deduct in medical insurance means that every family member has to pay this amount before insurance cover caters for him or her.
- Family Deductible – This is the total amount that the family is required to pay when transacting with health facilities before the insurance company starts to contribute to the medical expenses of every person in the family.
Example:
- Your family deductible is $4,000.
- Your individual deductible is $1,500.
- If one person had to spend $1,500, that was enough to make them pay for their insurance and the remaining persons in the family still have to pay.
- After spending $4,000 on family deductible, insurance plays its part on everyone’s expenses.
4.2 Embedded vs. Non-Embedded Deductibles
- Embedded Deductible: The amount of money to be paid before the insurance cover is to be met by each individual within a given plan for a family. There is no contact with PCP of health insurance once they get hit by it for that person, regardless whether family deductible has not been met.
- Non-embedded Deductible: Anyone is not covered until the total family deductible is paid.
4.3 Deductibles in Employer Health Insurance Plans
High deductible health plans (HDHPs) are a health insurance where employers contribute to lower premiums as compared to standard health insurance but charged high deductibles. They are often used with a Health Savings Account (HSA) to assist in the payment of costs.
4.4 Deductibles in Private Health Insurance vs. Government Plans
- Private Insurance: While it is possible to standardize most co-pay and coinsurance at varying costs, deductibles may be higher in some instances. Several plans have the annual premium accompanying a no deductible feature but the feature has its own disadvantage.
- Government Plans (Medicare, Medicaid, ACA Plans):
- Medicare Part A has a hospital deductible.
- While Medicare Part B has a lower deductible for 2010 than Part A, the patient is required to pay coinsurance on this part of the Medicare Plan.
- Some ACA Marketplace Plans have provisions for subsidies so that the rates may come lower.
When it comes to premium and cost-saving, a high deductible plan and low deductible plan contrast sharply with each other.
Many a times, whenever there is talk of the options in regard to a health insurance plan, many people have always gone for the low deductible health insurance plan as it means that they have to pay much less out of their pocket before insurance covers them. But that’s not necessarily true! At times, one feels that HDHP is more cost effective in comparison with other health insurance plans especially if a person experiences few diseases tests and or hospitalizations.
5. Comparison of High Deductible and Low Deductible Health plan: Which plan has benefits?
5.1 What Is a High Deductible Health Plan (HDHP)?
High deductible plan means:
- You are insured for a lesser amount every month.
- Half of the service costs must be borne by the patient before they can be reimbursed by the insurance firm.
- A Health Savings Account (HSA) could be available to you through which you can put money into taxable savings for upcoming medical costs.
5.2 What Is a Low Deductible Health Insurance Plan?
- The high expense for initial treatment becomes necessary because low deductible health insurance plans combine expensive premiums with minimal deductibles. This means: You spend more money each month on insurance.
- Insurance pays for expenses at an earlier time since you are required to fulfill the deductible amount.
- Thus, you cannot use HSA unless if it is an HDHP.
5.3 How to Choose the Right Plan for You
Ask yourself these questions:
- Have you been visiting the doctor often? A low deductible plan could save you money if it is yes.
- Your visits to a health care professional are infrequent. If yes, a high deductible plans may be a better choice.
- If needed, can you afford high out of pocket costs? Unless go for a low deductible plan.
- Are you eligible for an HSA? As far as an HDHP goes, if you will, this could be a great choice to save for medical expenses tax free.
What happens after you reach your insurance deductible?
First of all, even when you reach your health insurance deductible amount, insurance will not cover on 100 percent of the costs. Nevertheless, you would usually still owe a coinsurance percentage until you have met your out-of-pocket maximum.
Example:
- Your deductible is $2,000.
- Your out-of-pocket maximum is $5,000.
- There are many, you are to contribute the first two thousand dollars (your deductible).
- Simultaneously, coinsurance is the amount of the bill that you are supposed to pay after a certain amount has been paid by your insurance (e.g., 20% co-insurance).
- For the remaining part of the year, this implies that once total spending exceeds five thousand dollars, insurance covers all costs which come under the agreed amount.
6.2 How to Avoid Unexpected Medical Bills
- Check the amount of money you will have to cater for before seeking medical help when choosing your plan.
- It is recommended to see whether the plan has coinsurance for visits to physicians, even for the initial visits before the deductible.
- Make sure you limit out so you know the most you will ever have to pay.
- An HSA or FSA may not be subjective to the current tax laws but is recommended to cater for out-pocket costs.
7. Tips to Lower Your Out-of-Pocket Healthcare Costs
Having understood the outlook for you after meeting your deductible, it is time to discuss how you can reduce your overall spending on medical costs.
7.1 Choose an In-Network Provider
Always attend hospitals, physicians, and other facilities and use a pharmacy within the health plan’s network. Self-referral to an out-of-network provider is always costly and does not contribute towards the fulfillment of your deductible.
- Insurance companies do post a directory of in-network practitioners on their site, so you should consult them to see where to go.
7.2 Ask for Generic Medications
Brand-name drugs can be expensive. Do not fail to ask the doctor if there is a cheaper option that is available in the market.
7.3 Shop Around for Medical Services
What may come as a shock is that, you discover that different healthcare offering facilities set their rates for the same medical procedure differently. It is possible to use the tools like Healthcare Bluebook to compare the prices for the needed procedures.
7.4 Take Advantage of Preventive Care
It is important to note that numerous insurance plans do not charge a person any out-of-pocket fee for preventive services such as vaccines, screenings, or annual physical examinations even before the insured has paid the cost of the deductibles.
7.5 Negotiate Medical Bills
In this article, the authors make sure that their readers understand that getting a massive medical bill does not have to scare them. You should call the hospital or provider and what should be requested is:
- French: Easy Payment options, it’s lucky that I am here there are no hidden costs you can pay in installments or pay the full amount and you get a discount.
- Interest-free payment plans
- Financial assistance programs
7.6 Use Telehealth Services
Telemedicine is less expensive than face-to-face consultations of a physician. Telemedicine has become popular and is included in many of the insurance policies which will have to incur less cost.
9. How to Choose the Right Health Insurance Plan
Thus, health plan selection cannot be solely based on the price because it is important to consider all these other factors in addition to the premium costs. They also wanted to avoid a situation when their monthly expenses would be relatively low, but they would spend all their money they had saved in order to pay them.
9.1 Understand the Different Types of Health Plans
There are several plan types that a person is likely to encounter before selecting a health insurance plan.
- Health Maintenance Organization (HMO) – It involves payment of lower amounts of premium rate but the doctor, as well as specialists, must be within the HMO panel.
- Preferred Provider Organization (PPO) – The excessive freedom to see doctors in and out of PPO is allowed, but may attract a higher cost.
- Exclusive Provider Organization (EPO) – It is similar to the HMO except that the patient does not require a referral to a specialist.
- Point of Service (POS) – A combined of HMO and PPO with strengths in HMO but need referrals to the specialists.
- HDHP – lower premium, higher out-of-pocket maximum and can be connected with an HSA.
9.2 Compare Deductibles, Premiums, and Out-of-Pocket Costs
Before selecting a particular plan, I have asked myself several questions, namely:
- Is it in my financial capacity to meet the needed deductible? A lower premium may also mean a higher deductible, which equals to secondary costs at the time of receiving treatment.
- Am I a frequent patient? If the answer to the above query is yes a low deductible health plan with high premium might be cheaper.
- Do I need prescriptions? Ensure that the medicines you are prescribed are in the list of covered medications of the plan.
- Do I need specialist care? If yes, ensure that the specialists will not be needed to pay for such expensive procedures out of their pocket or get a referral to the provider.
9.3 Check the Provider Network
It is always important to ensure that your doctor, your hospital or the specialist you are visiting is on the insurance network. Out of pocket cost is often significantly higher and do not contribute towards the fulfillment of the deductible.
- Insight: Due to this, it is advisable for frequent travelers to opt for the PPO plan since they are not restricted to specific facilities.
10. How to Maximize Your Health Insurance Benefits
After selecting a health plan, the following step that should be taken is to ensure that, out of pocket expenses are kept to the lowest level possible.
10.1 Use Preventive Care Services
Preventive care services are well-covered; most policies do not allow any charges to be billed before meeting the required amount. These include:
- Annual checkups
- Vaccines (flu shots, COVID-19, etc.)
- Cancer screenings (mammograms, colonoscopies, etc.)
- Basic tests that include the cholesterol and blood pressure
Tip: It is advised that most of these should be done early enough in the year so that any complications with health are noticed early enough.
10.2 Plans for Major Medical Expenses
In addition, if you anticipate that have to undergo an operation, physical therapy or any medical treatment, it is recommended that you should:
- Plan it as early as you can in the year, in an effort to be able to attain the annual deductible.
- You can pay for the costs of using the app using a HSA or FSA.
- Negotiate medical bills with the hospital or provider.
10.3 Take Advantage of Telehealth Services
Most of the insurance programs have included telemedicine options in their prescription, which are:
- Cheaper than in-person visits.
- Faster and more convenient.
- Ambiance for one’s minor health complaints such as colds, allergies, and mental illness therapies.
10.4 Track Your Medical Expenses
Keep a record of:
- Your deductible progress
- Out-of-pocket spending
- HSA/FSA contributions and withdrawals
It assists you in budgeting for tax allowances, claiming for reimbursement, and for any future expenditure on the same.
Be Smart with Your Health Insurance
Self-funding or bearing of cost in your health insurance can be a task that does not need to cause stress. If you have a good understanding on what the insurance covers and your expenditures, it helps in avoiding unnecessary expenditure related to the insurance and getting the maximum of what the insurance covers.