How Health Insurance Deductibles Work

Key Takeaways

• A health insurance deductible is the amount that you pay out-of-pocket for medical care before your insurance company begins to contribute to your expenses.
• A higher deductible will lead to lower monthly premiums and higher out-of-pocket expenses, while a lower deductible will have higher monthly premiums and lower out-of-pocket expenses.
• Two of the most common types of health plans are high deductible health plans (HDHPs) and low deductible health plans (LDHPs).
• High-deductible health plans are an excellent option for healthy individuals who don’t seek care often, and low-deductible health plans are a good option for someone with frequent medical needs.

A health insurance deductible is one way that you pay for health coverage when you need medical services.

Health insurance deductibles affect not only how much you pay when you get healthcare but also influence your health insurance premiums. Health plans typically charge lower premiums for plans with higher deductibles and higher premiums for plans with lower deductibles.

What is a Deductible in Health Insurance?

A health insurance deductible is the amount you pay out of pocket before your insurance company pays a portion of your healthcare expenses.

“If your insurance plan includes a deductible, you’re 100% responsible for all of your medical costs until you reach your deductible,” says Janice Johnston, M.D., chief medical officer and co-founder of Redirect Health.

Deductibles are typically set annually, meaning they reset at the beginning of each year. If you have family coverage, you may have family deductibles or both individual and family deductibles, depending on the health plan.

Once you reach your deductible, a health plan’s coinsurance generally kicks in, and the health insurance company helps pay a portion of your health care costs.

For example, if your deductible is $2,000, you will pay 100% of your medical care costs up until that amount. After you have spent $2,000 toward your medical expenses, your insurance will begin to cover a specified percentage, as outlined in your plan, for any expenses made past this point.

Deductible vs. Premium

It’s important not to confuse your deductible with your premium. Your health insurance premium is the amount you pay every month to your insurance provider to keep your plan active.

You must pay your premium each month, even if you don’t use your health insurance. Meanwhile, you only pay your deductible if you use your insurance.

Premium prices are determined largely by how many people are on your health insurance plan and what services your plan includes. Typically, a higher deductible will lead to a lower monthly premium and vice-versa.

How Health Insurance Deductibles Work

Health plans usually calculate the money you spend on covered healthcare services, such as in-network doctor visits and tests, toward your deductible. Out-of-network care typically does not count toward your deductible.

Let’s say you go to the doctor and need tests. The total visit costs you $500. In that case, you would pay the bill, and $500 would go toward your deductible. If your plan’s deductible is $1,000, you’re halfway to meeting your deductible, which is when your insurance would begin helping with the expenses.

Once you reach your deductible, that’s when you need to know about coinsurance and out-of-pocket maximums.

How Do You Reach an Out-of-Pocket Maximum?

Health insurance plans have out-of-pocket maximums, which is the most you’ll pay in a year, including deductibles and coinsurance. Health insurance premiums don’t go toward your deductible or out-of-pocket maximum.

Once you reach your plan’s deductible, you and your health insurance company split the costs of care. This is called coinsurance and is usually a percentage, such as 20% or 80%. In this example, the member pays 20% of health care costs after the deductible is met, and the health plan pays the other 80%.

You pay your portion of coinsurance until you reach the plan’s out-of-pocket max. Once you hit the out-of-pocket maximum, the health insurance company pays 100% of your health care costs.

Let’s look at an example.

• Your health plan has a $1,000 deductible, 20%/80% coinsurance, and a $5,000 out-of-pocket maximum.
• You need multiple health care services, including tests and an MRI, in the first months of the year. You pay the first $1,000 and reach your deductible.
• Over the next few months, you need outpatient care and spend a day in the hospital. You and your health plan use coinsurance to split those costs 20%/80%, and you end up hitting your $5,000 out-of-pocket max.
• For the rest of the year, your health plan pays 100% of the health care costs when you need care.

Health insurance cost definitions

Different Kinds of Health Insurance Deductibles

Depending on your health insurance plan, you may have an individual deductible, a family deductible, or a combination of the two.

Individual deductible

If you have single coverage, an individual deductible calculates your healthcare costs. Once you reach that deductible, you head into the coinsurance portion and split health care costs with your health plan until you reach the out-of-pocket maximum.

A family plan may have individual deductibles as well as family deductibles.

Family deductible

Family coverage has two types of deductibles:

• Aggregate
• Embedded

An aggregate deductible means your family has one total deductible for the whole family. There aren’t individual deductibles for each person in those plans.

An embedded deductible plan has a family deductible and individual deductibles for each family member. When one family member meets their individual deductible, the health plan splits costs through coinsurance for that individual’s care. The rest of the family still pays up to the individual deductible for their care.

An embedded deductible also has a family deductible. If the family combines to reach the overall family deductible, the health insurance plan pays coinsurance for the entire family until you reach the out-of-pocket maximum.

What’s a High Deductible Health Plan?

A high-deductible health plan (HDHP) is one with a deductible for single coverage or for family coverage. These plans have higher out-of-pocket costs and typically lower premiums, so you pay less for coverage but more when you need health care. A high-deductible health plan is often paired with a health savings account (HSA), which lets you save money tax-free for future healthcare needs.

HDHPs can be an excellent option for healthy people who don’t need much health care but can be costly if you need regular services or have a family plan with multiple medical needs.

What’s a Low Deductible Health Plan?

A low-deductible health plan (LDHP) is one with a low deductible, so if you have a significant medical need, then your insurance will begin to cover expenses sooner. A plan is considered an LDHP if the deductible is less than $1,600 for single coverage or $3,200 for family coverage.

Like HDHPs, there is a tradeoff—with a lower deductible, you likely pay a higher premium, but you also enjoy lower out-of-pocket costs. However, the benefit is that your expenses are more predictable, providing a sense of security against unexpected out-of-pocket costs.

These plans are often a great option for people who have medical conditions or circumstances that require frequent medical visits, regular prescriptions, and ongoing treatments. They are also valuable in the event that a sudden medical need does arise, like a serious illness, injury, or need for surgery.

Is High or Low Deductible Health Insurance Better?

Deciding if a high or low-deductible plan is better often depends on how often you expect to need healthcare during the year. Understanding who benefits from each can provide you with valuable context for which may make the most sense for you.

Who benefits from high deductible health insurance?

Who benefits from low deductible health insurance?

How to Calculate, Manage, and Monitor Health Insurance Deductibles

One way to stay on top of your health insurance deductible is to closely monitor your spending against the plan’s annual deductible, which resets every year, cautions Dr. Darshak Sanghavi, global chief medical officer at Babylon Health, a health care company that specializes in 24/7 telehealth consultations.

If you anticipate needing an expensive procedure that will force you to meet your deductible, it’s in your best interest to schedule it early in the year.

Additionally, take advantage of the tools on your insurance company’s website and compare costs among doctors, recommends Sanghavi. “Some insurance sites also offer cost estimator tools that provide an individual the price they will pay among various providers for a CT scan or surgery,” he says.

What’s more, be sure you know which services are free in your insurance plan. “For example, preventative care and screenings are free and can help catch problems early on, leading to lower costs down the line, ” says Sanghavi. As long as the following services are performed by a provider in your plan’s network, you often won’t have to pay for them. This might include:

• Immunizations
• Blood pressure screenings
• HIV screenings
• Obesity screenings and counseling
• Tobacco use screenings
• Lung cancer screenings
• Fall prevention

How Should I Choose a Health Insurance Deductible?

What’s a good deductible for health insurance depends on your health status and financial situation.

Choosing a health insurance deductible requires you to think about your current healthcare needs and what you expect in the coming year. Do you plan to have a child? Are you expecting to need surgery?

You also want to look at your finances. Can you afford unexpected health care costs if you need care or would you rather pay more predictable higher premiums upfront to have coverage?

If you’re healthy or have enough money set aside in savings to pay the annual deductible, a high deductible plan may be cheaper because of the lower health insurance premium costs. But if you have medical conditions that need frequent care, a plan with a lower deductible and higher premiums may make more sense.

Whether you get health insurance through your employer or the Affordable Care Act marketplace, you typically can choose between multiple options. Use health insurance open enrollment to explore your options.

Once you figure out your expected healthcare needs and decide whether you’d rather pay more upfront when you need care, you can choose the right health insurance deductible for you.

Find Affordable Health Coverage through Redirect Health

Understanding health insurance deductibles is a crucial part of finding coverage that works for you. Consider whether it makes sense for you to have a low deductible with a higher premium or a high deductible plan with a lower premium based on your unique healthcare needs.

At Redirect Health, our healthcare plans feature clear and transparent monthly rates so that you can take charge of your healthcare journey. Each of our plans also provides no-cost preventive care, ensuring you get access to the care you need. All of this, on top of 24/7 access to care and the consistent support of our Care Team, means you and your family enjoy a seamless healthcare experience.

Explore our healthcare plans to find affordable healthcare coverage that provides quality, personalized care. Contact us today to learn more about our plans.