When choosing a health care plan, your deductible is a major consideration. But the word is a confusing piece of insurance jargon.
What is a deductible? And how does it affect the quality of your health insurance?
Defining a deductible
A deductible is the annual amount of money you must pay your health care providers — doctors, clinics, labs, hospitals — before the insurance company will take over your expenses. If your deductible is $2,000, you pay your medical expenses up to that amount before your insurance begins to contribute.
Once per year, your policy’s deductible might change. And each year, you have to meet the deductible again.
How deductibles work for you
A high deductible usually accompanies lower premiums (your monthly insurance bill). Lower deductibles frequently come with higher premiums.
- Higher deductible with lower monthly premiums: This choice makes sense for someone who considers herself healthy and rarely seeks medical attention — and has a limited monthly budget. A higher deductible means you’ll pay more out-of-pocket for each visit; but your monthly premium bill is lower. Often, preventive visits might be exempt from the deductible, so you get those visits for “free.”
However, there’s a risk. In the event of a medical emergency, this person may risk paying a very high bill to meet the deductible.
- Lower deductible with higher monthly premiums: Someone who wants better coverage in case of an emergency, or who has an ongoing medical condition and requires frequent trips to the doctor may want a lower deductible. If you have ongoing medical bills anyway, it makes sense to have the insurance company take over payments sooner, when that deductible is met.
If you do end up with medical expenses that add up to your full deductible for any one-year period, that’s when the insurance company starts paying its share of any additional medical expenses — except for your coinsurance or copays.
But let’s leave those terms for another installment.
In the new health insurance market, here are six things to know when considering your deductible.