What does “health insurance deductible” mean?

What Does “Health Insurance Deductible” Mean?

Whether you’re shopping around for your first health insurance policy, or you’re looking for a plan that fits your budget better, it’s important to have a good grasp of what all the insurance jargon means. If you don’t know the difference between a copayment and coinsurance, you aren’t alone. Another perplexing aspect of health insurance is the deductible. If you want to get the best coverage for yourself or for your family at a price your budget can handle, it’s vital that you know what a deductible is. 

What does health insurance deductible mean?

The deductible in an insurance plan is a specific amount of money that is agreed upon by the insurance provider and the insurance beneficiary. The beneficiary agrees to pay this amount of money out-of-pocket for medical services that are covered by the insurance plan before the provider begins paying for services. For most health insurance plans, the deductible amount applies to one calendar year. 

Let’s say that you have a personal health insurance plan that carries a $1644.00 annual deductible. This means that you must pay for 100 percent of your health care expenses during that year until you have paid at least $1644.00. 

It’s important to note that health care expenses for non-covered services don’t count towards the deductible amount. For example, if your plan doesn’t cover dental care, you can’t add out-of-pocket expenses for visiting your dentist to your deductible amount. On the other hand, if you get emergency care at a hospital, this is most likely covered. So the amount you pay for that care goes toward your deductible amount. 

After you meet your deductible for the year, your insurance provider begins paying its share of your covered medical expenses. This means that your provider may only pay a percentage of your expenses and you also pay for a percentage of these services. The amount of money you pay is called a copayment or coinsurance. 

It is common for most health insurance plans, even Medicare benefits, to have a copayment for covered medical services and supplies. The amount you pay for coinsurance/copayments, if any, depends on the insurance carrier and the plan you choose. In Original Medicare Part B, for instance, the coinsurance is 20 percent of covered services. But it’s important that you know the details of these charges before signing up for a plan. 

How does the deductible affect monthly premiums?

Health insurance plans also have a monthly premium. This is the payment you make to your insurance provider to have continued health care coverage. Insurance companies take several factors into account when setting the amount of your monthly premium. These can be: where you live, how old you are, whether you use tobacco products, what type of plan you choose, and how many people are covered. 

Insurance companies also adjust your monthly premium according to how much your annual deductible is. Generally speaking, having a higher annual deductible equates to having a lower monthly premium. Having a lower annual deductible may mean you will pay a higher monthly premium. 

Signing up for a higher annual deductible means that you are taking on more of the financial risk involved with your health care coverage. This allows the insurance provider to reduce the monthly cost for you. 

Whether you choose to have a high deductible or a lower one, depends on your personal health and economic situation. People who are healthy and don’t get injured often may benefit from a plan with a high deductible. Before choosing a plan, ask yourself these questions: “Do I have the ability to pay more money up front?” Or “do I need the insurance provider to start paying for my medical expenses sooner?” It’s worth taking the time to do the math. Figure out how each situation fits into your household budget and then make your decision.