What is a health insurance deductible?
Many have wondered what exactly is a health insurance deductible and how does a health insurance deductible work exactly.
The quick and simple definition is that the health insurance deductible is the amount that you, the insured, have to pay before your insurance company begins to pay out benefits. This is an overly simplified definition though because there are things that are separate from the deductible with many plans like copays and there are also things like coinsurance that can complicate things.
Let’s take a look at a few different examples so that you can better understand how your health insurance deductible works.
Example #1: You have a health plan with a $2,500 deductible, no copays, and 80/20 coinsurance on the next $5,000. If you break your leg and the hospital bill comes to $10,000 then you will pay the first $2,500 until you meet your deductible and then the insurance company will pay 80% of the next $5,000 and you will pay the remaining 20% of the next $5,000. Once the medical expenses reach $7,500 ($2,500 + $5,000) then the insurance company pays for 100% of the medical expenses for the rest of the year up until any lifetime maximum limits or other limits in the policy (usually $3,000,000 or more if you choose a reputable health insurance company). You can calculate your maximum out of pocket for any given year by adding your deductible of $2,500 and your portion of the coinsurance (20% of $5,000) $1,000. This means that your maximum out of pocket is $3,500.
Example #2: You have a health plan with a $2,500 deductible, no copays, and zero coinsurance. In this example if your medical expenses are the same as the above then your maximum out of pocket is equal to your deductible of $2,500 since there is no required coinsurance for you to pay. Once you reach your deductible then after that the insurance company pays 100% of all medical expenses for the rest of the year. This is commonly how health savings account health insurance plans or high deductible health insurance plans are designed. Many people like the fact that once they reach their deductible for the year then after that all of their medical expenses are paid for 100% for the rest of the calendar year.
Example #3: You have a health plan with a $2,500 deductible, a $35 copay for doctor’s visits, and zero coinsurance. If you have not had any other medical expenses for the entire year and the first thing that you do is have to go to the doctors office for a visit then all you will pay is your $35 copay. Copays are something entirely separate from the deductible. Whether or not you have met your plan deductible for the year all you will ever have to pay for doctors visits with this plan is the $35 doctor’s office visit copay. Of course, if you then have medical expenses for something that is not a doctor’s office visit then you have to start paying towards your health insurance deductible.
As you can see from these 3 different examples there are a number of different ways that you can use your health insurance deductible.
The important thing is to educate yourself on how your health insurance plan works, to choose a trustworthy company that offers a comprehensive health plan, and to shop around and compare rate quotes at least once a year to find the best value for your health insurance dollar.
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