Health Insurance 101: Deductibles
Health insurance lingo can easily confuse and even intimidate anyone, especially first-time health insurance buyers, who are trying to understand how it works. Since we already talked about copay and coinsurance, we’ll examine “deductibles,” what they are and how they work.
What are deductibles?
The deductible refers to a predetermined amount set by the insurance provider that you must pay before your insurance kicks in. You will pay this amount directly to your healthcare providers, such as your general practitioner or prosthetist, after delivery of medical services. So, if your insurance plan has a $1,000 deductible, you need to pay this amount to your healthcare providers until it is met.
For example, you incurred charges of $400 at your prosthetist and $600 at your physical therapist. You will pay these amounts directly to your prosthetist and physical therapist. Deductibles are not paid directly to your insurance company.
Once you have paid your deductible, your health insurance will pay for additional amounts over your deductible.
Keep in mind that your deductible will reset at the beginning of your policy period. So, if you are renewing your existing plan, your deductible will automatically reset to $0 each new year. However, your deductible is still different from your copay and coinsurance. So, if you have already met your deductible, you will still shell out some money at your next visit to pay for your coinsurance and copay.
How are deductibles different from the other out-of-pocket payments?
If you’re reading this article, you may have already read our previous article, which talked about the difference between copay and coinsurance. You may be wondering why you need to pay a deductible on top of the other payments.
Your health insurance premium refers to the amount you need to pay to keep your plan active. You can pay your premiums monthly, quarterly, or annually, depending on the payment arrangement you agreed on.
If you don’t use your health plan within the coverage period, there is no need to pay your deductible. However, you still need to pay your premiums until the end of coverage of your health plan. You will only pay the deductible when you use your insurance.
A copayment refers to the portion of a medical insurance claim that you are responsible for paying. Usually, this means that you pay a fixed, modest amount, but the actual amount varies depending on your insurance plan.
Your deductible will not pay for your copayment. Even if you have already met your deductible, you will still need to shell out money every time you receive medical services from a physician.
A coinsurance is designed to limit the percentage of medical claims covered by your health insurance provider. This way, your insurance plan may cover 80% of the total bill, while you pay the remaining 20%. The remaining 20% that you will pay is called coinsurance.
Your deductible will not pay for your coinsurance. You will only begin to pay your coinsurance when you have met your deductible.
With all of these different payment schemes, you may be wondering if there is a limit to your out-of-pocket expenses. This is where the out-of-pocket maximum comes in. The out-of-pocket maximum determines the most you will pay during a policy period, which usually covers a year.
Your deductible, copay, and coinsurance are factored into your out-of-pocket maximum. Once this maximum amount is met, your insurance will pay 100% of additional healthcare expenses. Keep in mind that your premiums and out-of-network provider expense are not included in this amount.
The maximum out-of-pocket amount differs from plan to plan, but expect it to be rather high.
High-deductible vs. low-deductible
The good news is that you have the freedom to choose between a high-deductible, low premium plan and a low-deductible, high premium plan. Determining which payment scheme is right for you depends on how much healthcare you expect you’ll need in the upcoming year.
A high-deductible, low premium plan is perfect for those who don’t expect much medical expense, such as reasonably healthy, younger people. This means that you pay low premiums and will only shell out a larger sum when you do need medical attention. You can view these policies as coverage against any catastrophic event.
Meanwhile, a low-deductible, high premium plan is perfect for those who expect a lot of medical expenses, such as people with a chronic disease or limb loss. If you’re a prosthetic user, you can expect regular visits to your prosthetist, who can ensure your prosthetic comfort. You may come in for regular socket adjustments and alignment checks. With this payment scheme, you can expect to shell out a modest fee with every medical visit, but a higher amount in upfront costs, which can help you save in the long term.
If you’re still not sure which plan is right for you, we recommend getting in touch with your insurance provider. They can help shed light on questions that we may not have been able to answer here. Furthermore, many insurance companies offer one-on-one counseling. You should grab this opportunity so you can better understand your options and weigh the risks.