A health insurance deductible is what you must pay for health care services before your health plan kicks in payments.
A deductible plays a major role in your health insurance costs. When deciding on a health plan, comparing deductibles, premiums, copays, coinsurance and out-of-pocket maximums should help with your decision.
Now, let’s take a look at deductibles, coinsurance and out-of-pocket maximums and how they work.
Health insurance deductible, coinsurance and out-of-pocket maximums
Health insurance costs are broken into multiple areas.
Premiums are what you pay to have health insurance. If you get coverage through your job, your employer deducts the amount from your paycheck.
Those upfront costs can be significant depending on the health plan. However, that’s just the start of health insurance costs. There are also copays, deductibles, coinsurance and out-of-pocket maximums.
Let’s look at an example to see how those health insurance costs work.
Say you have a $1,000 annual deductible and you haven’t used any health care services this year. You go to the doctor for a back problem. She refers you to a specialist, who has you get an MRI.
The MRI costs $2,000. Your deductible is $1,000, which means you’ll have to pick up that portion of the MRI. The health plan pays the rest minus your coinsurance.
Coinsurance is the percentage of the bill, such as 20% or 30%, that you must pay after you reach your deductible and before you hit your out-of-pocket max.
Let’s say your coinsurance is 20%. That means you’d be responsible for $200 of the remaining $1,000.
Your final bill would be $1,200 — not counting the copays to see the doctors. Copays may or may not count toward your deductible depending on the plan.
You pay coinsurance until you reach your out-of-pocket maximum. Out-of-pocket maximums are the most you’ll pay for health care services over a year.
They usually include any money that you spent rather than your health plan, including coinsurance. Premiums and non-covered out-of-network care aren’t part of the out-of-pocket maximum.
Out-of-pocket maximums differ by plan. Affordable Care Act plans, for instance, have out-of-pocket maximums of $8,150 for an individual plan and $16,300 for a family plan. An employer plan may have lower or higher out-of-pocket maximums, so make sure to find out before signing up.
Choosing a deductible
A deductible is an important cost to factor in when selecting a health plan. Over the past decade, deductibles have skyrocketed, while premiums have remained fairly steady.
Kaiser Family Foundation estimated that preferred provider organization (PPO) and health maintenance organization (HMO) plan deductibles for single coverage in employer-sponsored health insurance plans average about $1,200 annually. The average high-deductible health plan (HDHP) deductible is double that amount (more than $2,400).
That doesn’t mean you shouldn’t get an HDHP. Some people benefit from a high-deductible plan. For instance, healthy people who don’t expect to need many health care services over the next year might be better off getting a high-deductible plan with low premiums.
When comparing plans, review the following cost information:
- Out-of-pocket maximum
- Prescription costs
Run the numbers to see how much you would pay in premiums over a year. Look at the deductible, coinsurance and out-of-pocket maximum and figure out how much health care you expect to need over the next year. Also, if you have prescriptions, see how much they cost under that plan.
Your health and what you want from your health plan will also help you decide on a plan.
A high-deductible health plan might work for you if you don’t expect to need health care services over the next year.
However, you could be better off choosing a plan with a higher premium and lower deductible if you have a chronic condition, expect multiple doctor appointments and tests, have children, plan to start a family or would rather pay less for health care services. If you choose this route, just make sure you can afford the premium.
High-deductible health plans
HDHPs have become more common over the past decade as employers sought ways to reduce health costs. An HDHP has lower premiums than other plans, but also higher deductibles. So, you pay more out-of-pocket when you need health care services.
An HDHP has a deductible of at least $1,400 for a single plan and $2,800 for a family plan.
HDHPs also have savings accounts attached to them. Health savings accounts (HSAs) or Health reimbursement arrangements (HRAs) allow you to save for future health care costs tax-free. HSAs and HRAs both save for health care and employers can contribute to either account to help employees pay for their health care. They differ in other areas, though.
HSAs belong to the employee and you can take it with you when you change jobs. The employer owns HRAs, so you lose any money saved if you change jobs.
HSAs have an annual contribution limit ($3,550 per person or $7,100 for family coverage per year), while HRAs don’t have yearly limits.
Whether you choose a plan with a high deductible or a plan with lower out-of-pocket costs, make sure to take your time and run the numbers to find the health insurance plan that’s right for you.
How do you pick a deductible that’s right for you?
Choosing the right deductible depends on a number of personal factors, such as income, ability to save to cover expenses prior to meeting a deductible, health care needs, risk preferences, what plans are available, and other factors, says Joel Segel, associate professor at Pennsylvania State University’s Department of Health Policy and Administration.
“There is always going to be an inherent tradeoff between the health insurance premium and the generosity of coverage, which is typically some combination of deductible and coinsurance/copayments,” Dr. Segel says. “This is true of all insurance—car, homeowners’, and renters’ coverage all have this tradeoff.”