What Is a Health Insurance Deductible?

Getting medical treatment can be expensive because, well—health insurance. Those bills can skyrocket in a short amount of time, depending on what your insurance will and won’t cover.

But what about health insurance deductibles? How exactly do they work? And how can you make them work better for you and your family?

We’ll guide you through the world of health insurance deductibles, describe the different types, and explain what makes the most sense when it comes to deductibles and health insurance.

What Is a Health Insurance Deductible?

A health insurance deductible is the amount you’re responsible for paying before your health insurance provider begins to share some of the cost of medical treatment with you.

Health insurance, like any other type of insurance, comes with a monthly or annual premium— the amount you regularly pay to be insured in the first place. On average, an individual pays at least a few hundred dollars each month on their health insurance premium.¹

So, when do you find out what your deductible is? You specify your deductible amount when you enroll in your health insurance plan during the enrollment period. And that deductible is in effect for the whole year until it’s time to renew or enroll again.

How Does a Health Insurance Deductible Work?

Let’s pretend you have a health insurance plan with a $1,000 deductible. If you have an accident or develop an illness and need medical treatment, you’ll have to pay for the first $1,000 in medical costs.

And after you’ve met that $1,000 deductible? For any further medical treatment, the cost would be less to you because your coinsurance kicks in to help cover some of the remaining bills.

It’s good to remember that with most insurance plans, you’re usually able to receive certain routine and preventative health care services (like screenings or immunizations) for free—regardless of whether you’ve met your deductible. 

What Is Coinsurance?

Coinsurance is the term used to describe how your medical treatment is paid after you’ve reached your deductible amount. Coinsurance means you’re basically splitting the bill with your health insurance provider.

How Much Do I Pay in Coinsurance?

It’s a percentage amount depending on your insurance plan. If you’ve met your deductible and your coinsurance responsibility is 30%, that means your health insurance provider will pay 70% of each future bill until you meet your out-of-pocket maximum for the year.² See more below.

What Is a Copay?

A copay is like a service charge you pay every time you use a health care service. It’s a fixed amount decided by your particular health insurance plan. Copays are different than deductibles and coinsurance because you pay a copay whether you’ve met your deductible or not.

A copay for a standard trip to your doctor can be different than a copay for specialized services like physiotherapy, for example. Contact your provider for more details on your copays.

Will You Always Have a Copay?

No. It will depend on your plan, and the service you’re using. Some plans use them to cover shared costs, but others don’t. And sometimes the service you’re using will be paid for with a mix of a copay and/or your deductible and coinsurance obligation. Plus, as we’ll discuss more below, some plans offer certain services at no cost to you, such as annual exams or other preventive care.

What Is an Out-of-Pocket Maximum?

An out-of-pocket maximum is the maximum amount you’d be required to pay for covered health services during the year. The amount is defined by your health insurance plan.

This figure is made up of your deductible, your coinsurance responsibility and your copays. If you reach this out-of-pocket maximum, then your insurance company pays 100% of your remaining covered medical costs for that year.

Remember: Insurance companies love their fine print, so it’s good to check which health services they actually cover and which ones they don’t!

How Do I Decide on the Right Amount for My Health Insurance Deductible?

This really comes down to one thing: your overall health, or the health of anyone whose medical costs you’re looking to pay for through your insurance plan.

Let’s say you’re young and healthy and in the coming year you don’t anticipate any big medical costs. Signing up for a high-deductible health plan (HDHP) would be a really smart move for you. Why? We’ll give more details below, but the quick answer is because you’ll save a ton with lower premiums.

But maybe you have a medical condition, someone in your family’s expecting a baby next year, or you have young children active on sports teams. If any of those factors apply in your situation, it’s safe to assume you or someone in your family will be using a fair amount of medical services in the near future.

In that case, the wise move would be to choose a lower health insurance deductible. Of course, it will mean paying higher premiums than you’d get in an HDHP. But the extra monthly cost could be worthwhile if your plan covers a lot more of the costs you already know you’ll have.

What Are the Types of Health Insurance Deductibles?

Okay, so deductibles can come in different forms depending on the type of insurance plan you have! And your plan could have more than one type of deductible, which is another reason to check to see if they’re the right ones for you.

Here are the different types of health insurance deductibles:

Comprehensive deductible: A comprehensive deductible is a deductible amount that applies to and includes all of the medical coverages in your health insurance plan. Once you’ve met this comprehensive deductible, your plan’s coinsurance will take effect.

Non-comprehensive deductible: A non-comprehensive deductible means that not all of the medical coverages in your insurance plan will have a deductible applied to them. Your plan could provide some health services without you having to eat into your deductible. Woo-hoo! Again, check to see if the coverages without a deductible are beneficial to you.

Individual or family deductibles: Your family members might have individual deductibles, or the plan could just have one family deductible. This type of deductible can be met by all or just one member of your family. And once you meet this deductible, coinsurance kicks in—even if it’s for a family member who didn’t need health care up until this point.

In-network and out-of-network deductibles: These are separate deductibles for health services you receive from providers inside or outside of your insurance company’s network. Out-of-network providers cost more to use, which means deductibles are higher than any in-network deductible. So you’ll pay more out of pocket to use an out-of-network provider.  

Prescription drug deductible: You might have a separate deductible in your plan to cover prescription drugs. You’ll first have to meet this deductible when you’re picking up your prescriptions before the insurance company pays anything toward those medications.

Okay, you may be confused about all these different deductibles! But here’s the takeaway: Look at the fine print of your health insurance plan to see what types of deductibles apply to it and decide if they work best for your situation.

What Is an HDHP?

You’ve probably heard this term come up during open enrollment. HDHP stands for high-deductible health plan. It applies to health insurance plans with high deductibles that comply with rules the IRS sets at the federal level. Here are a few things to know about HDHPs:

• Basically, with an HDHP, you’re footing more of the cost of your health care from your own pocket before you reach the stage when your insurance kicks in.
• The IRS has guidelines about high deductibles and out-of-pocket maximums. An HDHP should have a deductible of at least $1,400 for an individual and $2,800 for a family plan.³
• People usually opt for an HDHP alongside a Health Savings Account (HSA). This better equips them to cover high deductibles with savings from their HSA if needed. The great thing about a Health Savings Account? You pay no federal taxes on your savings, which means you have more money to spend on vital health care when you need it. Plus the savings in an HSA are eligible to be invested in mutual funds, just like a 401(k). That means the money available to you for medical expenses can grow over time! One more beautiful thing about HSAs: The money in them rolls over year to year, so there’s no use-it-or-lose-it urgency. All the money works just as well for future eligible medical expenses as for needs you have today.

Can Adjusting Your Health Insurance Deductibles Save You Money?

The answer is yes! Adjusting health insurance deductibles can have benefits when it comes to how much you’re paying in monthly premiums and how much you’re paying out of pocket.

First, you should track how many times you’ve needed to see a doctor or buy prescription drugs in the past few years. If you’re in a family plan, this also goes for each member of your family.

How much health care do you need on average each year? Could you cover the cost of a higher deductible if you were faced with a large medical bill at any time?  

Higher Deductible Plans

Let’s say you’re single, in fairly good health, and you have health insurance with a high deductible of $5,000. The monthly premium you’re paying for this is around $300. That’s about half the monthly cost of other plans with lower deductibles.

Say you fall from a ladder and fracture your leg. You need a few days in the hospital and some physiotherapy.

The cost runs upwards of $10,000. You’ll have to pay $5,000 of that immediately before your coinsurance helps with the remaining amount.

But having a higher deductible does mean you pay a lower premium and can afford to put more into a Health Savings Account each month to pay that deductible if the time comes.  

Lower Deductible Plans

Now, let’s say you choose a plan with a lower deductible around the $1,500 mark.

Your monthly premium would be a lot higher (around $600 or more), but you would reach the lower deductible faster and get to that coinsurance stage when your insurance provider steps in to help with those bills around the corner.

But let’s not forget, with high monthly premiums you’re paying them even if you’re not visiting the doctor regularly and making insurance claims.

Find the Right Insurance for Your Needs!

Health insurance is a very personal type of insurance protection for you and your family. It’s important to know that the coverage you have (and the deductible that goes with it) are working in your best interests.

That’s why you need a top-notch independent insurance agent on your side to guide you through finding the best health insurance for you. We have the folks for the job! Our friends at Health Trust Financial have been serving Ramsey fans for over 20 years. They'lll connect you with an independent insurance expert who can help you find a plan for your needs.