When do you pay a deductible for health insurance

Trying to determine your annual health care costs? There are several pieces of the cost puzzle you should take into account, including your premiums, deductible, coinsurance and copay. Below is an explanation of each and examples that show how people use them to pay for health care. For details on your plan’s out-of-pocket costs and the services covered, check the Summary of Benefits and Coverage, which is included in your enrollment materials.

What is a premium? Premiums are regular payments to keep your health care plan active. Higher premiums usually mean lower deductibles.

An example of how it works: Trisha, 57, plans on devoting herself to her three grandchildren after she retires. Knowing she’ll need to keep up her energy, she just signed up for a different health care plan at work. The plan premium, or cost of coverage, will be taken out of her paychecks. Even though her new plan has higher premiums, the deductible and copays will be lower. That’s important since Trisha promised her grown children she’d be more diligent about her own health.

Read more about how health plans with higher premiums often have lower deductibles.

Her new plan will keep out-of-pocket costs predictable and manageable because as a former smoker with breathing problems, she needs to see doctors and specialists regularly. It’ll be a while before Trisha retires and becomes a full-time Grammy. In the meantime, she’s saving money, listening to her doctors and enjoying time with her family on weekends.

Deductible 

What is a deductible? A deductible is the amount you pay out-of-pocket for covered services before your health plan kicks in.

An example of how it works: Courtney, 43, is a single lawyer who just bought her first home, a condo in Midtown Atlanta. She loves that her building has a gym and pool because she likes to stay in shape. When she felt a lump in her breast during a self-exam, she immediately had it checked out. Thankfully, doctors told her it was benign, but she’ll need to undergo a lumpectomy to have it removed.

Courtney will pay out of pocket for the procedure until she meets her $1,500 deductible, the amount she pays for covered services before her health plan contributes. After that, she’ll pay 20 percent of any costs for the rest of the year because her hospital and doctor are in network. In the event she has more medical expenses this year, it’s good to know she’ll max out the deductible right away so she won’t have to pay full price.

Learn how you can save money with a health savings account.

Coinsurance

What is coinsurance? Coinsurance is the percentage of the bill you pay after you meet your deductible.

An example of how it works: Ben, 28, is a security expert living in suburban Philadelphia with his wife and two small boys. Their 3-year-old recently fell at the playground and broke his arm. The family maxed out their deductible already, so Ben will be responsible for only a portion of the costs ― or the coinsurance ― billed for the procedure to reset and cast the break. With his 20 percent coinsurance, he’ll end up paying a few hundred dollars for the hospital visit. His health plan will pay the remaining portion: In Ben’s case, 80 percent.

Find out how hospital plans can help you cover costs before you meet your medical deductible.

Copay

What is copay? Copays are flat fees for certain visits.

An example of how it works: Leon, 34, is a married forklift operator from Jacksonville, FL. He’s an avid runner, but lately has had nagging knee pain and swelling. His Primary Care Physician referred him to an orthopedic surgeon. Luckily, his health plan has some fixed costs and only requires $30 copays for visits to his regular doctor and $50 copays to see specialists like an orthopedist. (He also once paid a $150 copay the night he landed in the emergency room when his knee was so swollen he couldn’t bend it.) Having these set fees gives Leon peace of mind since he and Leah are saving to buy a kayak.

As it turns out, Leon has arthritis in his knee and needs physical therapy to help him stay active. His copays extend to physical therapy visits, where he’ll pay $20 for each session. Leon’s determined to get everything back on track so he and Leah can return to doing the things they love: spending time together outdoors.

By learning how premiums, deductibles, coinsurance and copays work, you can better understand your health care costs. Want to read more about the ins and outs of health care plans? Learn all you need to know here. 

The deductible on your health insurance plan is the amount you pay for health care out of pocket before your coverage kicks in. However, there are some expenses to which the deductible does not apply. For these, you are fully covered by your health insurance policy. Health insurance deductibles may vary greatly depending on your specific policy, but usually if you have a lower annual deductible, the plan requires you to pay more in premiums.

How does a health insurance deductible work?

A deductible for health insurance is the amount of money that you personally need to pay before copay and coinsurance benefits can be utilized. In other words, it is the dollar amount you need to spend on medical expenses before the health insurance company begins to pay for your health care services.

For example, if you have a plan with a $2,000 deductible, you are completely responsible for the first $2,000 in medical care, after which your carrier begins sharing the costs of health care services. Deductibles are the primary means by which insurance providers help maintain lower premiums.

Unlike deductibles in other forms of insurance, which work on a per-incident level, deductibles for health insurance are applied on an annual basis and generally across all services, with a few exceptions. The Affordable Care Act also established a maximum deductible amount, which is revised each year by the Department of Health and Human Services. In 2021, the maximum deductible for an individual policy was $7,200, and $14,400 for a family.

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 these deductibles are met, you are effectively not receiving any of the cost-sharing benefits of having coverage.

For those people with 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 means to cover the required deductible should an incident occur.

Understanding this tradeoff is vital in how you choose a plan and find the best health insurance for your needs. The deductible structure of a health insurance plan is important in deciding which plan you choose since it dictates when the carrier actually begins to pay.

What is the difference between an individual and a family deductible?

Each health insurance plan stipulates both an individual and a family deductible, with the family deductible typically twice that of the individual. It is very important for households that have multiple family members covered under the same plan to understand how these two values dictate their cost-sharing benefits.

Beginning in 2016, deductibles for insurance plans became "embedded". For each household, the health insurance company began tracking the total amount paid in deductibles for the entire family, as well as the amount paid toward deductibles for the care of each individual in that family. The company then begins to pay out benefits once one of two circumstances are met.

There are typically two scenarios that play out for each individual in the family and the family as a whole:

1. If any family member meets the amount set by the individual deductible, then the company will meet the cost-sharing benefits for that individual — and that individual only — for the rest of the year.
2. If the family as a whole meets the amount set by the family deductible, then the family will begin paying out toward expenses for every family member for the rest of the year.

Medical vs. prescription deductibles

Another aspect of deductibles is that many insurance plans treat prescriptions differently than other services.

Some health insurance deductibles split prescription-related costs into their own deductible category.

In such cases, a prescription deductible exists and is tallied separately from all other medical care. Policyholders for such plans are required to pay for medication up to the amount specified before the plan covers these costs.

People who have a high proportion of their medical expenses driven by medical prescriptions may actually benefit from having a separate prescription deductible as these amounts are typically much smaller than their medical counterparts. Plans with an Rx deductible make it easier for someone with high prescription costs to begin receiving the cost-sharing benefits offered by the policy.

Other exceptions to deductibles

While most cost-sharing benefits only kick in once the deductibles have been met, health plans can and do make a few exceptions where copays come into effect beforehand. For instance, all plans are required to cover preventive care at zero cost to the consumer.

Other exceptions to deductibles offered by plans include:

• Copays on a set number of visits to primary care physicians.
• Many catastrophic and high-deductible plans allow patients to pay a low copay for PCP visits even before deductibles are met.
• A number of plans offer up to three visits to the PCP for a copay.
• Generic drugs are also often excluded from the deductible requirement with an established copay applying at all times.

Health insurance deductible example

Example #1

Say you have a health insurance plan with a deductible of $1,000. During the course of the year, a medical event arises with a bill of $4,500 that is covered by your health insurance plan. Your health insurance policy will pay for this bill since it is covered, but you would first need to pay off the deductible. Your best option would be:

1. You would pay $1,000 out of pocket to the provider of the health services.
2. You would then reach your annual deductible amount.
3. The remaining $3,500 ($4,500 total bill minus $1,000 paid by you) would be paid for by your health insurance company.

Example #2

Now let's say you have a health insurance plan with a deductible of $1,000 and coinsurance of 20% after the deductible has been reached. During the course of the year, you receive a medical bill for $4,500 that is covered under your health insurance policy. Here, your best option would be:

1. You would pay $1,000 out of pocket to the provider.
2. You would then reach your annual deductible amount.
3. The remaining $3,500 ($4,500 total bill minus $1,000 paid by you) would be paid 20% by you and 80% by your health insurer.
4. Your total bill = $1,000 + $700 ($3,500 x 20%) = $1,700
5. Insurer paid = $2,800 ($3,500 x 80%)

When should a deductible be paid?

Do you pay a deductible every time you go to the doctor?

How do deductibles work for health insurance?

How do you pay your deductible?