Whether you own a car, health or home insurance, you have most likely come across the term deductible. So what exactly does deductible mean? In the context of medical insurance, deductible simply refers to the amount that an insurance policy holder has to pay every year toward their medical expenses. The insurance plan that the policyholders will only pay the rest of the amount after the policyholder has completed paying this deductible amount.
For example, imagine that you have a health plan that charges $1500 as deductible. After visiting a doctor, your medical bill may have added up to $30, 000. The insurance company will require you to dip into your own pocket and pay $1500. After this point, the benefits of your medical plan will kick in and cover the remaining $18,500, depending on the terms and conditions of the specific policy. The purpose of the deductible amount is to help reduce the cost of insurance premiums. That is, both the individual and the insurance company meet halfway to cover the costs. As a result, the number of small claims will be significantly reduced while the policyholders will benefit from their plans when the medical expenses become stiff. Deductibles get rid of unnecessary visits to the doctors. For instance, it is unlikely for a person with a plan that has a $1000 deductible to go to the hospital for a bruise or a running nose as compared to someone whose insurance pays for everything.
At this point, it is important to note that some types of care such as preventive care are usually not subjected to a deductible amount. This means that for common services such as screenings, annual physical exams, child-visits and immunizations, among others, a deductible will to be charged. The idea behind this move is to encourage policyholders to be proactive in taking care of their health by preventing diseases instead of waiting until they are sick and require more expensive medical care. Prevention as well as early detection have proven to be one of the most effective methods of reducing healthcare costs.
Many people are normally confused between the terms “deductible” and “co-payments”. While both these terms are added up and considered out-of-pocket expenses, they are two totally different things. For instance, a co-payment is simply a predetermined, fixed amount of money that a policy holder pays for certain medical expenses. For example, a $25 payment for a prescription drug is considered a co-payment. The insurance company then meets any additional amount of the medical expenses if it falls above the maximum co-payment amount one is required to pay. Generally, in most medical health plans after co-paying for a service or a prescription drug, a deductible is not a must. Therefore, it is important to carefully choose between different medical plans due to these details. Some medical covers have co-payments that others do not have. Additionally, some plans have co-payments that are considerably higher. Some do not have any co-payments whatsoever and rather charge a portion of the total amount of the medical bills.