Understanding Deductibles And How They Affect Your Health Insurance Costs

Health insurance deductibles are a key component of health insurance plans, but they can be confusing. Deductibles are an amount you must pay out-of-pocket before your health insurance will start covering your medical expenses. It’s important to understand how deductibles work as well as the different types of deductibles available in order to make the best decision for your individual needs and budget. Let’s take a closer look at what deductibles are, how they work and what types of deductibles you should consider when choosing a health insurance plan. 

WHAT IS A DEDUCTIBLE?

A deductible is an amount that you must pay out-of-pocket before your health insurance will start covering your medical expenses. This means that if you have a $2,000 deductible on your plan, then you would need to pay up to $2,000 of your medical expenses before your policy would kick in and begin paying for covered services. After that point, any eligible services will be covered by the policy (up to the policy limits). 

TYPES OF DEDUCTIBLES

​There are two main types of deductibles: annual and lifetime. Annual deductibles reset each year; this means that once you reach the limit during one calendar year, it will reset in January of the following year. Lifetime deductibles do not reset each year; instead they accumulate over time until they reach their maximum limit. Both types of deductibles can vary from plan to plan so it’s important to read through the fine print when comparing plans and costs. 

The amount of your deductible can have a significant impact on the amount you pay out-of-pocket for health care services. A higher deductible will typically mean lower monthly premiums, but it could also result in you paying more out-of-pocket when you do need medical care. 

Think of it this way, whoever holds more risk gets the savings first. If you are taking more risk by selecting a higher deductible, you get the savings and your monthly premiums will be lower. If the insurance carrier is taking more risk because you went with a lower deductible plan, you pay more monthly for the added security. When considering the cost of a health insurance policy, make sure to factor in both the monthly premium and the deductible amount.

There also can be individual and family deductibles. An individual deductible is a cost-sharing requirement for the policy holder. That is the deductible that you are personally responsible. A family is a single, combined amount that all covered members of the family must pay before their insurance policy will start paying for medical expenses. It's important to know if your plan has an individual or family deductible when you are researching plans and comparing costs.

Let's say your plans says that your family deductible is $6,000 for your family of 6. That sounds very reasonable for such a large group. However, if that family deductible is actually being calculated from an individual standpoint, that means that your deductible wouldn't be met until each family member has spent $1,000 toward medical expenses. 

On the flip side, if we take that same scenario, but consider it to be a single deductible for the entire family rather than single deductibles per family member, as soon as the family unit as a whole spent $6,000 regardless of who the care went to, you would meet your deductible.

This is where the contract matters. Make sure you are working with an agent who is familiar with each contract and insurance plan being presented. These are factors that you should consider to make sure you pick the right plan for the next open enrollment.

HOW DO DEDUCTIBLES AFFECT YOUR HEALTH INSURANCE COSTS?

The higher the deductible on a plan, the lower the premium cost usually is—and vice versa. A high deductible means more money out-of-pocket at first, but also lower monthly premiums over time because less money is paid into premiums with each month’s payment.

​On the other hand, low or no-deductible plans generally have higher monthly premiums but require less money out-of-pocket in case of an emergency or illness requiring medical care. It’s important to find the balance between these two options when selecting a health insurance plan so that you get adequate coverage without breaking your budget each month. 

We recommend looking at your deductible first when selecting a health insurance plan. If the deductible amount would cause financial crisis, look at the next plan up. The goal should be to find a health plan that you can afford monthly, but that won't put you into a risky situation for medical bankruptcy should a major medical event occur.

Deductibles are an important factor when choosing health insurance. You want to make sure you choose the plan with the best coverage for your individual needs and budget. Consider how often you go to the doctor, what kind of medical care you think you'll need in the future, and what you can realistically afford when choosing a plan.

The other thing to calculate is the cost of your current medications under the plan you're considering. These will be expenses you will owe until that deductible is met. Be careful, there are also some plans which cost of medications are a separate deductible or don't help to reduce your deductible at all. In other cases, these medications will still come with a big bill until your max-out-of-pocket has been met for the year.

If you have any questions or need help understanding deductibles and health insurance plans, contact your insurer. If you're tired of getting the run around from your agent or your insurance carrier, we'd love to see how we might be able to help!

​Deductibles are an important part of any health insurance plan and can have significant impacts on both premiums and out-of-pocket costs associated with healthcare services. The type of deductible you select will depend largely on your individual circumstances and needs—but understanding how deductibles work as well as what types are available in today’s market can help you make an informed decision about which health insurance plan is right for you. Taking some time to research different plans can save you money down the line when it comes time for medical bills!