To best manage your healthcare costs, you need to understand just how your coverage works. Understanding your health insurance plan starts by learning about your deductible. We’re going o review what a deductible is, how deductibles work, and how to choose between a high-deductible or low-deductible plan.
What Is a Deductible?
A deductible is a specific amount of money an insured individual must pay out-of-pocket each policy year before the insurance company begins paying for eligible medical services. Some deductibles are higher than others, which is a big factor in how much you’ll pay in premiums. The lower your deductible, the higher your monthly premium. (The premium is the amount you pay each month to be covered under the insurance plan.)
Some deductibles run on a calendar year, from January 1 to December 31. However, your benefit period may start on a different day or month. No matter when your policy year starts, you’ll have to pay that deductible sometime within those 12 months before your plan will begin paying benefits. For example, if your deductible is $1,500, you’ll need to pay $1,500 out-of-pocket before the insurance starts paying some of the cost.
How Do Deductibles Work?
An insurance plan’s deductible is separate from the monthly premiums. The insured member must pay the entire deductible before the insurance company begins paying its share for services. Once you’ve met your deductible, the insurance doesn’t necessarily cover all of your expenses. Plans use copayments and coinsurance, or cost-sharing, to determine how much you will owe for medical services once your deductible has been met. When your policy year renews, the deductible is reset. You must pay it once per policy year.
Some insurance plans do not include preventive services in the deductible. If yours does, it means that you’re allowed to get preventive care and only pay a copayment or coinsurance amount.
Sounds pretty straightforward, right? For the most part, it is. However, there are a few nuances you should know to fully understand how a deductible works.
First, what counts towards the deductible?
If your insurance plan would not have covered the procedure, service, device, etc., it will not count towards your deductible. For example, cosmetic procedures are not typically covered services in health insurance plans. If you have a hair transplant, those costs will not be counted towards your deductible.
Second, can you have more than one deductible?
Yes, your plan may have more than one deductible within its policy terms. You’ll commonly see family insurance plans with both an individual and family deductible. The individual deductible will apply to each person on the plan, and the family deductible applies to the family as a whole.
You might also have a separate deductible for your prescription coverage. If so, only your prescription costs will count towards your prescription deductible. We often find that if a plan has separate deductibles, the total amount is often much lower than combined deductibles. If you are enrolling in Obamacare, you’re deductible will be combined.
Medicare beneficiaries often have multiple deductibles. For example, Medicare Part A, B, C, and D all come with their own benefit period or annual deductibles.
Lastly, your plan may have a deductible that applies to services rendered by an in-network provider and a separate deductible for out-of-network services. The out-of-network deductible is often higher to incentivize you not to stray from the network. For example, Point-of-Service plans (HMO-POS) will have one deductible for the HMO providers and a separate deductible for non-HMO providers.
Your Costs after a Deductible
After you’ve paid your deductible, you’ll still have medical expenses if you need care. These will come in the form of either copayments, coinsurance costs, or both. Copayments or copays are a set dollar amount you must pay for a service. For example, many insurance plans have a copay for office visits that is usually between $20 – $30 per visit.
A coinsurance amount is a percentage of the fee. If your insurance has a 70/30 coinsurance benefit for a covered service, the insurance company will pay 70%, and you will pay the remaining 30%.
Insurance plans have an annual out-of-pocket maximum. This number is the maximum amount you must pay before your insurance plan begins to cover all necessary services at 100%. Your deductible, copayments, and coinsurance expenses all count towards your out-of-pocket maximum. In 2022, the limit is $8,700 for individual plans and $17,400 for family plans.
High Deductible Plans vs. Low Deductible Plans
We said that there are high-deductible and low-deductible plans available. (By low, we mean average.) You will pay less in premiums for a high-deductible plan, but you’ll have to pay more for your deductible until your insurance plan begins to help pay for medical expenses.
How do you know which one to choose?
There is certainly not a one-size-fits-all approach to determining the answer to this question. You’ll have to compare individual and family health insurance plans with each kind of deductible to figure out which one is right for you. Generally speaking, a high-deductible plan is a good option for healthy individuals who rarely seek medical care. On the other hand, if you have chronic conditions, a high-deductible health plan might not be a good idea for you.
One benefit to enrolling in a high-deductible plan is that you’ll be eligible for a Health Savings Account or HSA, which has great tax benefits. You can contribute funds to your HSA pre-tax, which will reduce your taxable income for the year. Then, you can either use those funds to pay for qualified medical expenses, or you can invest them. Your investments grow tax-free, and you can spend them tax-free, as long as their on medical costs. (Once you turn 65, you can spend your HSA on non-medical expenses and just pay normal income tax. If you do this before age 65, you’ll pay income tax and an additional penalty.)
If you’d like help finding health insurance in Texas, we’re here for you. At CoverMile, our licensed insurance agents take the time to get to know you and your family, so we can find the plan that best suits your needs. Contact us today for a complimentary consultation.
