09 Sep 2016

How Health Insurance Deductibles Work?

If you have ever looked into health insurance, sooner or later you’re going to encounter the term “deductible.” So what is it and how does it work?

A Simple Definition

The deductible is the amount you have to pay out of your own pocket for a certain type of health care service or product before the insurance company starts contributing towards your medical bills. Typically, the amount is for the whole year, and it all adds up.

So let’s say you have a deductible of $3,000 and in the first month you needed treatment that costs $2,900. You will have to cover that entire cost yourself, out of your own pocket since your deductible is $3000. But if you require another treatment within the same calendar year that costs $1,000 then your deductible limit is met and now you’re only paying for the extra $100 yourself. The rest of the $900 will be paid by your insurance provider.

Usually, a health insurance plan will have a large premium (monthly insurance payment) to go with a low deductible. A low premium, on the other hand, tends to come with a high deductible. For example, you may only pay $200 a month and have a deductible of $5,000 or you can pay $1000 a month with a deductible of just $500.

Different Deductibles

Some health plans have a separate deductible for prescription drugs, along with the deductible for other healthcare expenses. So if you tend to require expensive prescription medicine on a regular basis, your expenses towards buying your medicine go to your prescription drug deductible.

What Happens When Your Bills Go Past the Deductible Limit?

When this happens, your insurance provider will then step in and shoulder part of the cost. Your payments can be copays or you can pay coinsurance.

In copay, you pay a definite amount for a certain kind of health care service. So your plan may have you paying only $30 for a visit to a doctor, regardless of whether the doctor charges $100 or $300 per visit.  In some cases, this may be the payment scheme even before you reach your deductible limit.

In coinsurance, you pay a certain percentage of the amount after the deductible. So let’s say that you have a deductible limit of $5,000 and your plan has your insurance company paying 90% of the rest. If your total bill is $7,000 then you first have to cover the first $5,000 on your own. That leaves $2,000 and the insurance company forks out $1,800 as their 90% share of the expenses. So you pay $200 more for a grand total of $5,200.

Your deductible, along with your copay and coinsurance payment, adds up towards your “out of pocket minimum” which is $6,850 for individuals. This is the maximum you will pay for covered benefits (which may not include cosmetic surgery and other similar treatments). Once the bill goes past $6,850 then the insurance company covers 100% of the costs of the covered healthcare services.

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