What's a health insurance deductible?
What is a health insurance deductible?
To understand health insurance deductibles, think about the word itself. A deductible is the dollar amount subtracted, or deducted from what the insurance company pays before the plan begins to pay a percentage of your health care costs. It’s the amount you have to spend out-of-pocket before your coverage goes into effect, a sort of down payment on your health care. If you have a deductible, you have to pay that amount first, and then your insurance company will start contributing on your behalf. Only it’s not really that simple.
Every health insurance plan is designed differently. While most costs don’t count toward your deductible, some do (preventive care, in some instances). Some plans have separate deductibles for prescriptions. Some have separate deductibles for individual family members. Some apply towards part of your care, but not everything (the ambulance ride, for example, but not the hospital stay). Every plan is different.
Understanding common terms
When shopping around for a new health plan, there are many common terms that may (or may not) affect deductibles:
Copayment, copay/price
A flat charge for a service. Unlike many confusing terms in the health insurance world, copays are an easy concept. A $20 copay for a doctor's visit is a $20 copay, regardless of what happens during your visit. It is consistent. Your copay generally doesn’t count toward the deductible. Your copay might, however, count toward your out-of-pocket maximum.
Coinsurance
The amount you pay once you meet your deductible—a percentage of costs of a covered health care service in an insurance plan. (Whether it's 80/20 or 90/10, your insurance company pays the first number; you pay the second.) Coinsurance can be tricky. You might pay coinsurance until you reach your out-of-pocket maximum. After this cap has been met, your insurance company typically pays 100% of covered services.
Premiums
The cost of buying insurance—your monthly ticket to the program. Typically, the lower the monthly premium, the higher the deductible. For employer-sponsored plans, the health insurance premium is deducted from each paycheck. Premiums don’t count toward the deductible.
High-Deductible Health Plan, or HDHP
A health plan that offers low health insurance premiums as a tradeoff for high deductibles—making insurance seem affordable at first glance. Because an HDHP has the potential to save employers money (but not necessarily save employees money) HDHPs are fairly common for businesses. In many cases, it’s the only health plan option for employees.
Health Savings Account, or HSA
Used in conjunction with HDHPs, a health savings account is a tax-free account reserved for medical expenses. Since an HDHP traditionally has a lower premium, some people budget their HSA contributions in order to cover their deductible—providing them with some peace of mind should they get sick or need emergency care (it’s not exactly easy to come up with thousands of dollars on short notice).
Not just anyone can open an HSA. There are federal guidelines:
- You have to be covered under a qualifying High-Deductible Health Plan
- You can’t be covered by any other medical or health insurance plan
- You can’t be enrolled in Medicare, TRICARE or TRICARE for Life
- You can’t be listed as a dependent on someone else’s tax return
- You can’t have medical benefits through the Veterans Administration
- You can’t have other medical savings accounts, including a Flexible Spending Account or Health Reimbursement Account.
If you withdraw money from your HSA for non-medical expenses before you turn 65, you are charged a penalty and held responsible for paying income taxes on the funds.
Out-of-pocket maximum
The maximum amount of money you'll ever pay for care in a given year, a way to safeguard you against catastrophic or chronic events. With traditional health insurance plans, the one expense that likely won’t count toward your out-of-pocket maximum is your premium (premiums are just a given—you have to pay premiums to maintain your coverage). In many policies, the deductible does not count toward your out-of-pocket max.
'Breaking' it down
Still confused? Here's a scenario to illustrate how a deductible might work: You have a $1,000 deductible plan. You break your wrist. You go to urgent care. You pay your copay. The good news? It’s a simple fracture. You don’t need surgery. The bad news? The treatment costs come to $2,500. Ouch. Now your wallet and your wrist are hurting.
Even though you have health insurance, even though this is the first time you’ve needed to use the health care system during this calendar year, you’re on the hook for that $1,000 deductible before your coinsurance kicks in to cover any additional costs. You pay a monthly premium so that you have insurance coverage, but right now it doesn’t feel like much of a benefit.
The real cost of deductibles
How did we get to this point? When deductibles were introduced 20 years ago, the idea was that if people took on more of the financial responsibility, if they had some skin in the game, they would be more savvy with their choices (and help contain the rising costs of health care). It didn't work. Even still, the number of employers opting for high deductible health plans grew during the financial crisis of 2008, pushing costs onto employees to cut expenses.
Since then, the number of companies offering HDHPs has grown and grown, along with the amount of the deductibles themselves. According to a survey released by the Kaiser Family Foundation, deductibles rose 212% between 2008-2018. Read that again: 212%. That astronomical increase is eight times the rate of workers' wages and 10 times the rate of inflation.
Covering health care bills through deductibles can leave many people feeling squeezed. As reported in a different Kaiser Family Foundation/LA Times survey, approximately 4 in 10 workers said they didn’t have enough money saved to cover the cost of their deductible.
When people can’t afford the deductible, they are more likely to delay or postpone critical appointments, treatments or prescriptions. Foregoing necessary care—an unintended consequence of HDHPs—can lead to even more costly interventions in the future. If people fail to get the care they need when they need it, how is insurance doing its job?
A $0 deductible plan
By getting rid of health plan deductibles and giving consumers informed choices, Surest members pay less in out-of-pocket expenses than they would typically spend trying to reach a deductible. A $0 deductible is a health benefit that actually feels like one.