What Is A Good Deductible For Health Insurance? Important Factors To Know

What is a health insurance deductible? How exactly do they work? And how can you make them work better for you and your family? Read this article to know the vital information about deductibles for health insurance.

Insurance companies share the cost of your medical care in various ways. One standard method is by including a deductible in your health insurance plan. Consumers, who purchase health insurance, must be familiar with health insurance deductibles to manage the health insurance costs.

A health insurance deductible is a consumer’s amount to pay for covered services or medications before their insurance plan begins. A deductible is a component of cost-sharing. Insurance companies add covered medical expenses to or accumulated toward a deductible over a year and then start over the next year. However, if you purchase a health insurance plan through the marketplace, deductibles will work differently.

Like any other type of insurance, health insurance comes with a monthly or annual premium. It is an amount that consumers regularly pay to be insured in the first place. Individuals pay at least a few hundred dollars each month on their health insurance premium. Nevertheless, it is vital to know what is a good deductible for health insurance? But do you know why it is essential to understand the deductible limit? Go on with this article to grasp all the information.

What is a deductible in insurance?

You may often hear that coverage begins “after you pay a deductible.” At the same time, you do not pay a deductible to the insurance company. Instead, you are generally paying for repairs or, in the case of health insurance, for medical care. Once you pay the deductible, your insurer will take care of the rest of the expenses as agreed.

It is crucial to keep in mind; an insurance deductible is the amount of money you will pay on an insurance claim before the coverage begins. Deductibles have been an essential part of insurance policies since many years ago. It is how risk is shared between you, the policyholder, and your insurer. Generally speaking, the larger the deductible, the less you pay in premiums for an insurance policy. A deductible can be either a specific dollar amount or a percentage of the total amount of insurance on a policy.

What is a deductible for health insurance?

Health insurance deductibles are a way to help offset the cost of health care. Health insurance deductibles require the insured (the person covered under a health insurance policy) to pay a certain amount toward his health coverage before the insurance company has to begin paying under the health insurance policy. The insurance company considers the amount of the health insurance deductible when determining how much the premiums for the health insurance coverage will be. The higher the deductible is, the lower the premiums are likely to be.

A health plan helps pay your medical expenses, but health insurance does not always pay for everything; you will often have to chip in. Most health insurance plans compose a cost-sharing plan between you and the insurer; you pay a portion of the cost, and your insurer pays a part. How those costs are determined depends on different aspects of your plan, including the deductible.

Different types of health insurance deductibles

Health insurance deductibles can be complicated when comparing health insurance plans or figuring out how much your current one will pay for a given expense. Although deductibles generally work in the same way regardless of what type of coverage they apply to.

There are several types of health plans and deductibles for each plan. Insurance companies design the health insurance plan along with its deductible that caters to the needs of the consumers.

Let’s discuss a few types of deductibles that you may come across while shopping for health insurance plans.

Individual deductible

The individual deductible is how much each member on the plan would need to pay toward covered services before insurance coverage comes into effect. If you and your spouse are both on the same health plan and the individual deductible is $1,000, you would need to pay $1,000 toward your costs, after which the insurance company would start covering its portion of your expenses.

Suppose you spend $1,000 on covered health care, and your spouse spends $500. You would pay a coinsurance percentage and any applicable copays for the rest of the year. Your spouse, however, would still pay the total cost of covered care until they met either their individual deductible or the family deductible.

Family deductible

Whereas the individual deductible applies to what one person spends on health care, the family deductible applies to expenses for everyone covered by the plan. It is often twice the individual deductible amount, regardless of how many family members are on the plan. Suppose the household collectively spends up to the family deductible on covered services. In that case, the insurance policy will begin to pay for everyone’s covered services, even if some members did not meet their individual deductibles.

Let’s suppose this plan also has a $2,000 family deductible. If you spend $2,000 on your covered care, you would satisfy the deductible for yourself and everyone else on the plan, even though they did not satisfy their individual deductible amount.

In-network vs. out-of-network deductibles

Many insurance plans have two additional types of deductibles: in-network and out-of-network. Since some plans, like preferred provider organizations (PPOs), contract with a network of doctors to offer discounted services, they tend to have higher deductibles if you use doctors outside the network. Individual and family deductibles often differ based on whether they are in-network or out-of-network.

For example, a plan with a $1,000 in-network individual deductible might have a $2,000 out-of-network individual deductible. The same plan might have a $2,000 in-network family deductible and a $4,000 out-of-network family deductible.

In this case, it becomes imperative to know which deductible your costs satisfy and what types of care will be covered by your insurance once you meet that deductible. If you fulfill the in-network deductible, the insurance company will pay its portion of in-network costs, but you will still be on the hook for 100% of out-of-network expenses. And if you use both in-network and out-of-network providers, it will cost you more to reach either deductible amount, which could significantly diminish the value of your plan.

Prescription drug deductible

Depending on the type of plan, the category of drugs, and whether drugs are from an in-network provider, they might be covered by a copay alone, a coinsurance amount after a deductible, or a coinsurance amount with no deductible. The applicable deductible could be the larger plan deductible (individual or family) or a specific prescription drug deductible that would need to be met before the policy would cover any prescription drugs.

Do all healthcare insurance policies have deductibles?

Every health insurance plan generally has deductibles. However, there might be some plans that have zero deductibles. The question that arises in most consumers’ minds is which health insurance plans always have deductibles. So, you can expect deductibles on these plans.

  • Medicare and Medicare Advantage
  • Medicaid
  • Qualified health plans (QHPs), whether from employers or the health insurance marketplace
  • Short-term, limited-duration health insurance

How do different factors work with your deductible?

Your deductible is one part of your cost-sharing duty. After you fulfill this duty, you still have various out-of-pocket expenses related to your deductible. There are three main types of expenses, which we will discuss below.

Insurance premiums

As mentioned above, higher deductibles are linked to lower premiums. Similarly, lower deductibles typically lead to higher monthly premiums.

Copays and coinsurance

These cost-sharing charges start after you meet your deductible. Copays are flat fees for covered health services, such as $30 for a doctor’s visit. Coinsurance is the percentage of the medical bill you’re responsible for paying. For example, with 20% coinsurance, you’d owe $20 for a $100 doctor’s office visit. Your plan documents will have specific information on when these charges apply.

Out-of-pocket maximum

This figure represents the annual limit you owe for covered healthcare treatments and services. Beyond that amount, the insurer pays for 100% of the covered services. Deductibles count toward your out-of-pocket maximum, as do all payments you make for covered health services. With your deductible, your progress toward your out-of-pocket maximum resets to $0 when the new plan year starts.

What is deductible in health insurance with example?

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. Suppose you have a health insurance plan with a $500 deductible. A major medical event results in a $5,500 bill for an expense covered by your plan. Your health insurance will help pay for these costs, but only after you’ve met that deductible. This is what happens next:

You pay $500 out of pocket to the provider. Because you met the deductible, your health insurance plan begins to cover the costs. The remaining $5,000 is covered by insurance, but you may still have to pay a percentage of the costs, depending on if your plan has copays or coinsurance.

When you are trying to meet your deductible, certain health care costs will be excluded. Premiums and copays generally do not count, but you should check the details of your plan.

The cost of certain preventive services and benefits such as an annual physical exam usually do not count towards the deductible either because they are covered in full by health insurance. Prescription drugs are also typically covered even if you have not met the deductible. However, specific plans may require a separate deductible for prescription drugs before insurance helps to shoulder the costs.

How to choose a deductible level?

The two primary considerations when selecting a deductible are your ability to withstand risk and the amount you expect to spend annually on health care coverage. For example, if you have recurring medical expenses each month, such as prescription drugs, then you may want to select a lower deductible plan that allows you to quickly reach that deductible.

On the other hand, if you are relatively young and do not get sick often, selecting a plan with higher deductibles may make the most sense. As a result, higher-deductible plans generally have lower premiums. Until you pay these deductibles, you are effectively not receiving any cost-sharing benefits of having coverage.

For people who have low expected health care expenses, a more affordable health insurance plan with a higher deductible may make more sense. This lowers your guaranteed out-of-pocket costs by reducing the premiums you pay on a monthly basis. The only thing to consider when selecting a plan is whether or not you have the financial capacity to cover the required deductible should an incident occur.

Is it better to have a high or low deductible for health insurance?

The best health insurance policy for you depends on your budget and health history. During the purchase of an insurance policy, a buyer can choose the deductible amount. Many people only look at insurance premiums when comparing health plans. However, they are oblivious that this monthly price only represents one of the expenses that contribute to how much a consumer will spend on health care in a given month.

Nevertheless, deciding to opt for a high or low deductible while buying a health insurance plan decides several aspects of your coverage. Whether you are an employer looking for group plan options or an individual looking for yourself and your family, the question that is likely on your mind during the open enrollment is: “Is it better to have a high deductible health plan (HDHP) or a low deductible health plan (LDHP)?” and “what is a good deductible for health insurance?”

High vs. low deductible: what are the main differences?

As the name implies, the significant difference between HDHPs and LDHPs is the healthcare deductible, the amount of money you pay before your insurance carrier starts to pay for any medical expenses. In 2022, an HDHP has an individual deductible of at least $1,400 and a family deductible of $2,800. Consequently, a plan qualifies as an LDHP if it has a deductible of less than $1,400 for an individual or $2,800 for a family.

High deductible health plan(HDHP)

While HDHPs have higher deductibles than LDHPs, there’s a reward for taking on more risk. HDHPs typically have lower monthly premiums than LDHPs. A high deductible health plan has a lower monthly premium, so in a way, if we do not require medical care, we save money every month. At the same time, a high-deductible plan limits the amount an individual or an employee will have to spend on out-of-pocket expenses every year, so a consumer is free from those unlimited bills.

HDHP plans are often a good option for younger or healthier people because they are less likely to need medical care. These plans can also make sense for older people who are healthy, have savings, and are willing to take a chance on higher out-of-pocket expenses in case they need medical care. HDHPs may cover some preventive care benefits at no or minimal cost. This could include the following:

  • Annual physicals
  • Immunizations
  • Routine prenatal care and well-child visits
  • Screening services for things like cancer, heart disease, pediatric conditions, and vision and hearing disorders
  • Tobacco cessation programs
  • Obesity weight-loss programs

The downside of the high-deductible plan is that the deductible can become a heavy burden. It’s challenging to pay over $1,500 or $2,000 all at once. Also, the deductible is not the only out-of-pocket cost. Plans can have copayments and coinsurance fees on top of that. We could pay thousands in case of extensive treatment before the insurance kicks in. There is also a risk that employees could choose to skip treatment because they cannot or do not want to pay the deductible. If they do this, their health will suffer, and if their condition gets worse, they may need even more expensive care in the future.

Low deductible health plan (LDHP)

A low deductible health insurance plan is far more predictable. Even though you pay a higher monthly premium, there is often little to no worrying about a large out-of-pocket expense if we ever get sick or require medical care. This makes low deductible plans a better choice for people with known health issues or older people who are more likely to need medical care. The only downside of a low deductible health insurance plan that we could see is a higher premium.

In the sections below, we’ll go into how each plan type works for both individuals and employers. However, this chart is a quick and easy way to compare the two plans to help get you started:

  High Deductible Health Plans (HDHP) Low Deductible Health Plans (LDHP)
Premium Lower than LDHP to account for increased financial risk Higher than HDHP to account for reduced financial risk
Deductible  

Individual: at least $1,400

 

 

Family: at least $2,800

Individual: less than $1,400

 

 

Family: less than $2,800

Out-of-pocket maximum limit Individual: $7,050

 

 

Family: $14,100

N/A
Coinsurance Depends on the plan, but typically higher than LDHP Depends on the plan, but typically lower than HDHP
HSA-Compatible? Yes, as long you have a qualified HDHP, per IRS regulations No
Group coverage HRA (GCHRA) compatible? Yes Yes
Individuals should consider if: ●     You’re young and healthy

●     You expect to be a low user of your health plan

●     You want to open an HSA

●     You can’t afford the premiums on an LDHP

 

●     You’re older or in poor health,

●     You expect to be a high user of your health plan

●     You want to limit your exposure to high medical bills

 

Employers should consider if: ●     Your employees are young and healthy

●     You can’t afford the premiums on an LDHP

●     You want to supplement your plan with an HSA or GCHRA

●     Your employees are older or have major health conditions

●     You have a large health benefits budget

●     You’re want to keep employee out-of-pocket costs as low as possible

Do you have to pay health insurance deductible upfront?

When you file a claim, your insurance will require you to pay your deductible up front before providing you the financial assistance. Financial experts often recommend increasing your deductible in order to reduce your monthly insurance costs. In general, it is true that higher deductibles mean you have to pay lower premiums.

Because many people fail to understand the intimate details surrounding healthcare services, they don’t know what they can or can not do. So, when the hospital says that they have to pay upfront, they go along with it. However, do people have to say yes? As mentioned, hospitals will often bill people using an estimate of what they will likely be paying for specific services. But that figure could be wrong. In which case, you are allowed to request to pay when the bill is sent to you after the insurer has paid a portion.

However, it mostly depends on the health insurance plan that your provider requires. Here are a few steps you can take if a provider asks for payment upfront.

Contact Your Insurance Company

You will definitely want to discuss any payment to a medical provider (beyond a standard copay) with your insurance company before making the transaction. In some cases, insurers have contracts with providers stating that all bills must be sent to the insurer before payment can be made. This allows the insurer to negotiate rates and will hopefully save you some dough in the long run.

Check with Local Regulators

Contact your state’s insurance department to determine if the practice of requiring upfront payment is lawful in your state.

Consider Your Options

Is this an emergency? Do you need to use this specific provider, or are there other options? Do you have the resources at hand to pay the amount they are requesting? If not, you could ask the provider if payment plans are available.

Conclusion

Health insurance is important for everyone. Like every insurance, consumers generally pay deductibles before the plan begins. Deductibles are a cost-sharing feature of almost every health insurance plan. Plans may impose different deductibles for different treatments or services. For example, ACA-compliant plans charge no deductible for preventive care services. If your plan has a high deductible, adding a health savings account or supplemental insurance may help you manage the expense over time.

But there is one question that buyers think most about, “What is a good deductible for health insurance?” The general concept says high deductibles mean consumers will pay low premiums whereas low deductibles mean high premiums. Deciding the right amount for your health insurance deductible comes down to one thing: your overall health, or the health of anyone whose medical costs you are looking to pay for through your insurance plan. Hence, deciding on a good deductible for your health plan completely depends on your financial ability and other earlier discussed factors.

Charles Bains

Charles Bains

Charles Bains started his insurance career as a marketing intern before pounding the pavement as a commercial lines agent in Orlando, FL. As an industry journalist, his articles have appeared in a variety of trade publications. His insurance television career, short-lived but glorious, once saw him serve as the expert adviser on an insurance-themed infomercial (yes, you read that correctly). Having recently worked for various organizations, coupled with his broader insurance knowledge, Charles is able to understand our client’s needs and guide them accordingly. He is a gem for Insurance Noon as his wide area of expertise and experience have been beneficial in conducting further researches to come up with solutions and writing them in a manner which is easy for everyone including beginners to comprehend.