If you are buying insurance for the first time, there is a lot to learn about how a medical plan functions. One of the things you will want to understand is how a health insurance deductible works.
Fundamentals of Insurance
To understand how a health insurance deductible works in a health insurance plan, it is important to understand a basic principle of insurance. Instead of a person taking the chance of financial loss due to an unforeseen event, that person can pay a price (called a premium) to an insurance company, and an insurance company will accept the risk of the financial loss. The greater the risk of loss, the greater the premium.
One way to lower the premium is to take on more risk of the loss for yourself. A typical method employed to do this is to implement a deductible.
So What is a Health Insurance Deductible?
A deductible is a flat dollar amount that a policyholder pays before the insurance plan pays any claims. For example, if you have a $1,000 deductible, and your medical claims are $5,000, you will pay the first $1,000, and the insurance plan will pay the last $4,000 (assuming no coinsurance).
What if you have a medical claim of just $400? Well, you will pay $400, and on your next medical claim you will be responsible for the first $600 ($1,000 deductible minus the $400 you paid earlier).
Is Everything Subject to a Deductible?
It depends on the plan that you have. A typical major medical plan utilizes copays for things like office visits to primary care doctors, specialists, and the emergency room. If you pay a copay for these visits, you usually will not be required to pay your deductible on top of this (some plans do actually require a copay plus a deductible for emergency room visits).
Plans that are labeled “High Deductible Health Plans,” or HDHPs, usually require all claims to be applied to the deductible before the insurance company will pay for any claims. This means that the policyholder will pay the full cost of medical services and prescriptions until the health insurance deductible is met.
How Can I Know What is Subject to My Deductible?
Make sure to carefully read the benefit summary of any medical plan you are thinking about enrolling in. The Patient Protection and Affordable Care Act (PPACA), more commonly referred to as Obamacare, requires insurance companies and group plans to provide a Summary of Benefits and Coverage (SBC) for medical insurance plans.
SBCs are designed to succinctly display the benefits that a medical plan provides. The language is easy to read, and an SBC makes it easier to compare benefits between multiple plans on an apples-to-apples basis. This will be the best way to find out what is subject to your health insurance deductible.
How Do I Know What Deductible is Best for Me?
That really depends on the amount of risk you are willing to take. A low deductible will require more money paid in premium. A high deductible means lower premiums. If you do not want to take the chance of paying a lot of money out of pocket if you need medical services, then you’ll want a lower deductible. Just know that you’ll be paying more in premium.
A high health insurance deductible requires you to pay more money up front if you get sick, but it also lowers your premium and gives you more money to use for other living expenses.