What is a Deductible for Health Insurance?

In health care insurance, a deductible is a term referring to the amount of money you have to pay from your own pocket every year before you can enjoy the benefits of your insurance plan. Deductibles are commonly confused with other out-of-pocket payments such as co-payments and co-insurance. It is therefore understandable when people seeking medical insurance are not able to choose the health care plan that suits them most. In order to afford appropriate health care for you and your family, you got to have a comprehensive understanding of how low and high deductible plans work. Additionally, it is important to understand how monthly premiums affect your insurance plan.

Deductibles can vary widely, from a few hundred dollars to thousands of dollars, depending on the specific health insurance plan. Some insurance plans, for example HMOs, do not have any deductible fees charged to the policy holders. In general, when an individual visits a doctor, they are afterwards charged a medical fee. Depending on the terms of the insurance plan covering your medical care, you may be required to pay a certain amount known as co-insurance until you reach a maximum limit called the out-of-pocket maximum. Co-insurance is another form of cost sharing technique meant to lower the risk of insuring individuals and families and hence lowering the overall cost of medical insurance. After reaching the out-of-pocket maximum, the insurance covers the total cost of any additional medical bills.

Basically, insurance plans are a game of numbers between premiums and deductibles. For instance, if you are willing to pay more premiums per month, the lower the deductibles you will have to pay when you visit a doctor. The reverse is also true, the less you pay in terms of premiums per month, the more deductibles you will pay when you pay the doctor a visit.

High-deductible health plans are sometimes known as “consumer-directed” insurance policies. These are plans with deductible amounts that are more than the maximum set by the IRS. As of 2015, these values were no less than $1300 for individuals and $2600 for family insurance plans. For the insurance companies, a high deductible amount means that the insured individual is responsible for a larger percentage of their medical costs initially, which saves the companies money. For the insured person, they will part with a lower monthly premium.

People with high-deductible insurance plans are usually qualified to apply for a Health Savings Account (HAS). These accounts allow people to save a limited amount of money for medical expenses without being taxed. In a case where the employer is responsible for the employees’ medical insurance, then the employer is allowed to contribute to their workers’ HSA’s account from their pre-tax income. This leads to significant amount of savings. In general, the HAS account is usually linked to a debit card that one can use to cover out-of-pocket medical costs including the high deductible charges. Since this money is not taxed, it encourages peole to save for their medical care as well as reduce general tax burdens.