Understanding Your Health Insurance Deductible
Posted: February 13, 2020
Health insurance is an important investment. Without it, you would be responsible for covering 100% of the expenses if something major happens to you, such as surgery or an extended hospital stay. With health insurance, though, a large sum of the medical and hospitalization expenses would be covered if you have an illness or injury. However, there are several things to consider before you choose a plan, like the deductible amount.
What Is a Health Insurance Deductible?
Your health insurance deductible is the total amount of money you pay for a medical expense before your insurance takes over to cover the remaining balance. For example, if you have a medical bill of $5,000 and your insurance policy has a deductible of $1,000, you would pay that $1,000 out of your own pocket. Your insurance would cover the remaining $4,000, minus any coinsurance that might be written into the policy.
For certain services, such as basic health checkups, the insurance will cover the expense before you meet the deductible. All health plans cover the cost of select preventative benefits in advance of any deductible. With certain plans, there will be separate deductibles on select expenses, such as the cost of prescription medications. If you set up a family plan, there will likely be two types of deductibles: one for each family member and another for the family as a collective unit.
Deductible amounts are generally the inverse of premiums. If you open a policy with low monthly premiums, you will typically pay a higher deductible in the event of any medical or hospitalization needs. If you open a policy with high monthly premiums, you will likely have low deductibles should you have a health expense arise in the future.
Deductibles vs. Premiums and Copays
With most health insurance policies in the U.S., there is some form of cost-sharing, where the cost of a medical expense is split between the insurance company and you, the policyholder. Examples of cost-sharing include deductibles, coinsurance and copays, all of which account for your share of the total cost of a given medical expense.
With deductibles, the percentage of the total medical expense that you would pay as a policyholder is simple to calculate. If, for example, your insurance deductible is set at $1,200, you would pay that amount before any insurance coverage kicks in to handle the remaining balance. If the medical bill does not exceed your deductible, you would have to cover the total cost out-of-pocket, and your insurance company would pay nothing.
Coinsurance is an additional cost-share that comes after the deductible on many U.S. health insurance policies. Under this type of plan, the coinsurance would be the percentage of the balance that you pay after the deductible. For example, if your plan pays 80% of your medical bill after the deducible, your coinsurance would be the remaining 20%. Therefore, if you have a medical bill for $3,000 with a $1,000 deductible, the insurance would pay $1,600, and the remaining $400 would be your coinsurance.
When you are billed a fixed amount for a medical service, that is known as a copay. The cost of a copay can depend on the kind of medical service in question. For starters, your insurance policy would dictate the amount of your copay on various types of medical services. A policy might also determine when the copay is owed within the sequence of costs. In some cases, you might owe the copay before you have paid down the deductible. Alternately, the copay could arise at the same time as coinsurance after you’ve paid the deductible in full.
Example Situation Using a Deductible
Most younger adults view health insurance as something they don’t necessarily need right now because they don’t anticipate accidents or illness. Consequently, young people tend to opt for low premiums with high deductibles. That way, the premium is nothing more than a minor monthly cost for coverage that might never be used during the span of the policy.
The problem with low premiums is the high deductibles that arise when a medical need does come up. To get your coverage, you must first pay the deductible. If you have a deductible of $5,000, you will need to pay that amount first before your insurance covers the bulk of the balance, minus any coinsurance.
Imagine the following health insurance deductible example. You have a choice between two health plans. One is $150 per month with a $10,000 deductible, and the other is $300 per month with a $1,000 deductible. You decide to go with the $150 per month plan to save some money upfront.
But what happens if you suddenly have a major medical emergency or injury that ends up costing $30,000? Had you taken the $300 monthly premium, your insurance coverage would kick in after the $1,000 deductible, but since you opted for the lower premium, you will have to pay $10,000 before your insurance will cover any of the costs. For most Americans, a payment of $10,000 would be a huge expense they may not be able to afford.
What Is a Good Deductible?
Despite the cost of deductibles, health insurance can lower your medical costs. The role of the health insurance company is to negotiate rates with medical providers to ensure that you, the policyholder, can pay a lower rate on healthcare.
When it comes to deductibles, there is one key difference between health insurance and other forms of insurance. With health insurance, you can still get some of your services met before you pay the deductible entirely. With auto insurance and homeowners’ insurance, you generally have to pay the deductible in full before you can receive any of the benefits.
When you are looking for a health insurance policy, think of the deductible vs. premium issue as a balancing act. The more you pay for one, the less you’ll pay on the other, and vice versa. Therefore, your deductible rate should be based on your health needs and current financial situation.
If you currently earn a modest income but have already built a large savings account, your best bet would likely be low premiums and high deductibles, especially if you do not foresee any health issues in the near future. If you are currently in a higher-earning bracket, yet you face certain health issues, it might be better to opt for higher premiums and lower deductibles.
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In the state of California, if you are not covered through a work policy or a loved one, such as a spouse or parent, you can apply for healthcare insurance quickly and easily by contacting the Health for California Insurance Center. Get in touch with us today to fill out an application and speak to a representative for more information.
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