How does Health Insurance Deductible Work?
Sometimes it seems confusing, but it`s not so difficult to understand after all. This post will help you with it.
What does this mean for you?
A high-deductible plan is ideal for those who rarely visit the doctor and wish to keep their monthly expenses to a minimum. This is because they will benefit from lower premiums and have peace of mind in case anything happens. However, those who get sick more often will end up paying more. The deductible amount is not refundable — nobody gives you back what you initially spent. It can be as high as $1,000 or $5,000 per insured person. Insurance companies will pay reimbursement once you have reached your deductible.
Let us give you an example:
Let’s say your insurance policy costs $2,000 a year. With a $1,000 deductible, however, you will receive a discount and pay $1,500. You have saved $500 on your yearly premium! Unfortunately, you get sick more often than expected. You must reach the $1000 deductible before you can claim the cost of your treatment from the insurance company. This means that your discount is not really a discount.
You will pay at the end of your pocket money. The purpose of health insurance deductibles is to help offset the cost of healthcare. Deductibles require the insured person to pay a certain amount towards their health coverage before the insurance company begins to pay out under the policy
The insurance company considers the amount of the deductible when determining the premiums for the health insurance coverage. The higher the deductible, the lower the premiums are likely to be.
How Health Insaurance Deductibles are Used?
If a health insurance policy includes deductibles, the policyholder must pay a certain amount towards their healthcare before the insurance company has to pay anything under the policy.
Health Insurance Deductibles for Various Types of Coverage
Most health insurance policies have different deductibles for different types of coverage. For instance, an individual may need to reach a $1,000 deductible before their insurance company will cover the cost of a hospital visit. However, they might only need to meet a $250 deductible before the insurance company will pay for prescription medication. This depends on the health insurance plan chosen.
Quick Overview of Deductible
Base premium: $5,000 per year
Annual deductible: $250 (15 % discount on the premium)
How it works
You pay the first $250 of any eligible medical expenses yourself. Once this amount has been reached, the insurer will cover 100% of all remaining eligible costs for the remainder of the policy year. When the policy is renewed, the deductible resets to $250, giving you the same 15% premium discount for the new coverage period.
Of course, insurance premiums may increase, which will affect the amount of the discount.
Example of how a $250 Annual Deductible Impacts an Health Insurance Plan
| Item | Details |
|---|---|
| Base Premium (per year) | $5,000 |
| Annual Deductible | $250 (gives a 15 % discount on the premium) |
| Premium after 15 % discount | $5,000 × 0.85 = $4,250 |
| Total Out‑of‑Pocket if deductible is met early | $250 (paid once) |
| Net Cost for the year (Premium + Out‑of‑Pocket) | $4,250 + $250 = $4,500 |
| What happens after the $250 is paid? | Insurer pays 100 % of all subsequent covered expenses for the remainder of the policy year. |
| Renewal | At the start of the next coverage year the deductible resets to $250 again, providing the same 15 % premium discount for the new term. |
Key takeaway: With this structure you pay a reduced premium of $4,250 and only $250 out‑of‑pocket before the insurer assumes full responsibility for the rest of the year’s covered medical costs.Example of how a $250 Annual Deductible Impacts an Health Insurance Plan
What is difference between Insurance Deductibles and Coinsurance?
Deductibles – the policyholder is responsible for paying the first $250 of healthcare costs.
Coinsurance – the policyholder is responsible for paying percentage of each claim filed under their health insurance policy.
