Q: A Simple Explanation of Health Insurance Deductibles and How They Work

A deductible is the amount of money you have to pay toward your health care before your health plan begins to pay its share. Health plans use deductibles as a form of cost sharing to split the cost of healthcare with you.

Health plans sometimes have more than one type of deductible. Deductibles may function differently when multiple family members are enrolled in the same health plan.

Some related terms include: 

  • Copay: a fixed dollar amount you pay every time you see a healthcare provider. 
  • Coinsurance: a fixed percentage you pay toward the cost of healthcare.

How does a deductible work?

A deductible is one cost of an enrollee’s health insurance benefit. In the deductible you have to pay the full cost – up to the health plan’s contracted rate – of your health care. 

Let’s say your deductible is $1,000 and you have a medical visit that costs $1,300. You’d pay for the first $1,000 of the cost out-of-pocket, and would pay cost-sharing—copays or coinsurance, depending on your plan—toward the remaining $300 of your visit. 

You may owe copays for medical services you receive during your deductible—even if it hasn’t been fully satisfied.

Health insurance deductibles differ somewhat from the deductibles used in homeowners or auto insurance policies because they don’t apply to certain services. For example, under a major medical plan that complies with the Affordable Care Act (ACA), preventative care is fully covered and not subject to a deductible, even if it hasn’t been satisfied. Review your health plan’s summary of benefits and coverage (SBC) for more information on what may be covered before the deductible is met.

What are the different types of deductibles?

Some health plans use a comprehensive deductible that applies to all services the health plan covers. If your health plan uses a comprehensive deductible, it will apply to every service other than preventive care. 

But if your health plan uses a deductible that isn’t comprehensive, it will apply to certain services (e.g., x-rays and lab tests) but not to others (e.g., primary care visits). This means you could receive coverage for some services without having to meet the deductible first. 

Other plans may have separate deductibles for medical services and for prescriptions. Each deductible may need to be met separately in order for the rest of the cost to be covered. For example, if you have a $1,000 deductible but a separate $500 deductible for prescription drugs, you will need to meet the $500 prescription deductible even if you’ve met the $1,000 deductible with other medical services (like doctor visits).  

Some plans also have different deductibles for in-network services and out-of-network services. It is important to review your plan’s terms before receiving services.

What is the difference between individual and family deductibles?

Health plans usually have both individual and family deductibles. If multiple family members are enrolled in the same health plan, the costs paid by each family member often count toward both their individual deductible and the family deductible.

Here is one way a family health insurance plan may pay benefits for an individual in that family:

  1. An individual  satisfies their individual deductible.the health plan will begin paying after-deductible benefits for that individual, but not other family members.
  2. The family deductible is met. All family members will receive after-deductible benefits coverage, whether or not they have met their individual deductibles

Let’s say a three-person family has a health plan with a $500 individual deductible and a $1,200 family deductible. If two family members each have medical visits costing $600, both would first have to meet their $500 individual deductible. They would then pay either a copay or coinsurance toward the remaining $100 of their visit’s cost. 

But the third family member to have a medical visit – which, in this example, also costs $600 – would pay just $200 toward their deductible before reaching the $1,200 family deductible. This means the health plan would pay a larger portion of the cost of that family member’s visit. 

If you’re unsure about how the family deductible applies, review your plan’s summary of benefits and coverage or speak with your carrier or broker to get clarification.

Is there a relationship between health insurance premiums and deductibles?

Generally, health plans with higher deductibles have lower premiums. Health plans with lower deductibles tend to have higher premiums.

How does my deductible work if I’m in an HSA-compliant plan?

Suppose you’re in a High Deductible Health Plan (HDHP) that allows you to contribute to a Health Savings Account (HSA) (called an “HSA-qualified HDHP”). The health plan isn’t allowed to cover any expenses besides preventive care before you’ve met your deductible. This means you’ll be required to pay the deductible before receiving coverage for most types of healthcare.
The IRS sets a minimum deductible that HSA-qualified HDHPs must have. In 2021, that minimum amount is $1,400 for individual coverage and $2,800 for family coverage. A separate limit – of $7,000 for individual coverage and $14,000 for family coverage – restricts total out-of-pocket expenses under any HSA-qualified HDHP. You can check with your insurance carrier or broker to see if your plan qualifies for an HSA. Keep in mind that there are other factors that may limit your HSA eligibility.

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