How Health Insurance Deductibles Work

In Category: Health Insurance

How Health Insurance Deductibles Work Image
  • Posted On: December 31, 2021
  • Article By: Vivian Blanco

You and your health insurance company will share your health care costs. Deductibles, copays, and coinsurance are all examples of what you'll pay. Understanding how each instance works helps you know how much you might spend.

In this article, we'll learn what a deductible is and how it works. We will also understand copay, coinsurance, and out-of-pocket maximum, usually found in the same policy.

What is a deductible?

A deductible is an amount you pay for health care services before your health insurance begins to pay. So, for example, if you receive a procedure that costs $2,500 and your plan's deductible is $2,500, you'll pay 100 percent of the bill. Similarly, if the procedure costs $10,000, you're still only responsible for the $2,500 deductible if the procedure is covered.

This is very similar to a car insurance deductible; it works the same way, kind of. The main difference is that car insurance deductibles are per incident or accident, while health care deductibles are determined yearly.

Embedded Deductibles

Unfortunately, it's not always this easy. Is your plan a single or family plan? We've discussed deductibles for a single plan, not a family plan. These vary by carrier and can work a couple of different ways. You must often meet both an individual deductible and a family deductible before the carrier pays 100% of the costs for services in a family plan.

Some companies have what's called an embedded deductible. In a policy with an embedded deductible, no single person on a family plan will have to pay a deductible higher than the individual deductible amount. Non-embedded deductible plans do not begin to pay for medical expenses until the entire family deductible is met.

Let's say your family policy has an individual deductible of $2,500 and a family deductible of $5,000. With an embedded deductible, once one individual has met the $2,500, they will be covered entirely, but not other family members. They would have to meet their deductible until the family deductible is met. Non-embedded deductibles include only the family deductible.

After that, you'll share the cost with your plan by paying coinsurance or by having a copay, but more on copay later.

Your deductible amount will affect your monthly premium. When you're willing to pay more upfront when you need care, you save on what you pay each month.

You should understand your policy thoroughly, as your circumstance would determine if a higher or lower deductible will suit you financially and cover your healthcare needs.

What About Copay Or Coinsurance?

Copay is a fixed dollar amount you'll pay for eligible health care services, such as a doctor's office visit, hospital visit, and prescriptions, usually paid when you receive the service.

This is different from coinsurance which would be a percentage of the bill, not a fixed amount. However, the amount can vary by the type of service. Your plan determines your copay for different services and when you have one. As a result, you may have a copay after you pay your deductible and when you owe coinsurance.

Out-of-pocket Maximum

Another term you should be familiar with is the out-of-pocket maximum. This amount is the most you'll have to pay in a given calendar year towards any covered services. Again, this amount is commonly higher than the deductible, copay, or coinsurance since it's the accumulated cost for the year. When the maximum out-of-pocket is reached, your insurance provider will cover 100% of the costs for covered services for the remainder of the year.

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