- A deductible is how much you pay for health care services before your insurance kicks in to cover at least a portion of the costs.
- Many people don’t understand how deductibles work, which may lead them to choose the wrong health plan.
- The amount of your deductible can affect your premiums and out-of-pocket costs.
- The average deductible for a single person in an employer health plan is $1,669.
You’re starting a new job, and it includes health benefits. Yay! But as you review your options, you start to panic. There are all sorts of terms that you don’t understand: Health insurance deductibles. Copays. Coinsurance. Formularies. The same thing can happen at open enrollment every fall when you get to pick a new health insurance plan.
If you’re confused by all the terminology, you’re not alone. In a survey from the National Association of Insurance Commissioners, 32% of respondents said they didn’t know how much their deductibles were, and 25% weren’t aware of their copayment amounts.
But it’s not as complicated as it sounds. By understanding how health insurance deductibles work and why they are important, you can make a more informed decision when you’re choosing a health plan.
Inside this article
What is a health insurance deductible?
A health insurance deductible is how much you have to pay out-of-pocket each year before your health insurance plan starts to pick up a share of the costs. (A deductible typically doesn’t apply to certain preventive services, which are free without any patient cost-sharing.)
If your health insurance deductible is $2,000, for example, you’ll need to foot the bill for all the health care services covered by your plan (except eligible preventive services) until you reach that threshold. Once you hit your deductible, your health insurer will start covering a portion of your medical costs, or all of it.
The average deductible for a single person in an employer health plan is $1,669.
Your deductible is a key factor in determining your overall health care costs, according to John Millen, a health insurance expert with Affordable Health Insurance. “If the employer offers more than one plan, it’s common to see different levels of deductibles being offered,” he says.
How does a deductible differ from a copayment and coinsurance?
In addition to a deductible, you will have copayments or coinsurance (or both) with any health insurance policy. Here’s what they are:
Copayments (or copays) are a fixed dollar amount that you pay for a covered medical service, such as a doctor’s visit.
Coinsurance is the percentage of the cost of covered medical services that you're responsible for paying. You also pay coinsurance after you've met your deductible.
Let’s say you have a health plan with a $2,000 deductible and 20% coinsurance. Your doctor charges $100 for an office visit. Since you haven’t yet met your deductible, you’ll have to pay the entire $100 bill. However, after you hit your deductible, your health insurance will cover a portion of the costs. In this case, you’ll pay 20% of the $100 visit, or $20.
When does a higher deductible make sense?
Before you opt for a plan with a high deductible in the hopes of saving money, look at your previous year’s spending and how much care you expect to need in the upcoming year. Consider how often you tend to go to the doctor, fill prescriptions or receive any kind of medical treatment.
If you seldom see a doctor and don’t take prescription medications on a daily basis, a higher deductible can make sense. You’ll have coverage in case of a medical emergency or serious injury, but your monthly premiums will be relatively low.
If, however, you have a chronic health condition, expect to make multiple doctor visits over the year or take prescriptions on a regular basis, you will likely pay more out-of-pocket with a higher deductible plan than if you had opted for a plan with a higher monthly premium and a lower deductible. Higher premiums will be offset by lower overall costs.