What you need to know about deductibles

Health insurance costs can be hard to navigate and that includes deductibles. Understanding what deductibles are, the different levels of deductibles and whether to pick a high-deductible or low-deductible plan are key to your success. 

What exactly are deductibles?

The deductible is the amount that you pay before your insurance begins to pay out a claim. The total claim payment on treatment is what your health insurance pays minus the amount you paid that is “deducted.” 

The philosophy behind deductibles is that paying them can be a deterrent for excessiveness — basically, going to the doctor for things that can easily be taken care of without a visit — without it being an onerous charge for the insured. It’s sharing the risk between you, the health care provider and the insurer.

The deductible is part of what is called the Out of Pocket (OOP) costs for your health insurance.

The government categories your OOP costs as:

1. Your set deductible
2. Copays
3. Coinsurance
   

The OOP costs DO NOT include your premium (the amount you pay for insurance each month) or any out-of-network costs. 

A quick note about copays and coinsurance: Your health insurance may include a copay or coinsurance percentage, in addition to a deductible. 

A copay is a set amount that you pay for services and doctor visits  — basically a visit fee. 

Coinsurance is the percentage that you pay for covered services after you’ve met your deductible. For example, if you have an 80/20 plan, you’ll pay for 20% of covered services and your insurance will pay 80%. But keep in mind, that’s after you’ve met the set deductible.

Typically, copays do not count toward your deductible. There are exceptions so be sure to study the fee schedule on your health insurance. 

After you pay your deductible, you’ll pay your co-insurance until you meet the OOP maximum. After that, your insurance pays all your covered expenses for the year. The ACA sets a cap on out of pocket costs for individuals and families. For the 2024 plan year, the out-of-pocket limit for a Marketplace plan can’t be more than $9,450 for an individual and $18,900 for a family.

Depending on your plan, you won’t pay a deductible for some services, such as preventive care or birth control. On the flip side, you may need to pay an extra deductible for prescription drugs. Make sure you read through your insurance plans to ensure you have all your bases covered. 

Levels of deductibles 

Generally speaking, the higher your deductible, the lower the premium costs. 

Most American health insurance plans will be one of two varieties: a lower deductible but higher premium through a HMO, PPO or POS plan; or a high deductible healthcare plan (HDHP) with a lower premium. 

If you receive coverage through an ACA marketplace plan, Bronze and catastrophic plans will have higher deductibles and lower premiums. Gold and Platinum plans will have lower deductibles and higher premiums. 

If you pick a silver plan and qualify for tax benefits, you can get lower deductibles and lower copayments. 

Also, individual and family deductible levels are different. Typically, the family deductible is twice the amount of the individual deductible. So if an individual deductible is $500, then the family is $1,000. 

There are two types of deductibles for families, aggregate vs. embedded and it can get a little tricky to understand them both.

• With an aggregate deductible, any payments the family makes goes toward the deductible until the entire family meets the total deductible. 
• With an embedded deductible, family members have an individual and the family deductible. If one family member reaches their individual deductible, then insurance will pay for that one member’s services. If that one family member reaches the family deductible, then insurance will pay services for the entire family. 
  

For example:

You are a family of four that has a $2,000 family deductible and an $1,000 individual deductible for each member.

Early in the year, Parent A pays $1,000 for treatment. That $1,000 counts toward Parent A’s individual deductible, so insurance will cover any future treatments for Parent A for the calendar year. Also, that $1,000 counts to the family deductible. 

A month later, Child #1 goes in for care and the services cost $300. Now, $1,300 is credited toward the family deductible. 

It’s been a bad week because Child #2 also hurt themselves and the treatment costs another $1,000. That means the family will pay $700 to fulfill the deductible and insurance covers the remaining $300 — and the rest of the benefits (minus copays and coinsurance) for that calendar year. 

What works best?

It’s fair to say that health insurance will be one of your biggest expenses as an independent worker and if you aren’t on your spouse/domestic partner’s plan, then it’s a major expense you’ll need to figure out. 

Here’s some additional things to keep in mind in considering deductible:

1. If you want to purchase a catastrophic plan from the Marketplace and are over age 30, you’ll need to apply for a hardship exemption at Healthcare.gov.
2. If you are relatively healthy and don’t expect to visit the doctor or need a lot of prescription drugs, health deductible health prices (HDHP) could be a viable option. The premiums will be lower but as the name states, the deductible is higher.
3. If you are a family with several members, a plan with an embedded deductible is definitely the way to go, particularly if one family member will need more care than the other members in the course of a year.
4. If you already have an established primary care doctor, make sure they will be able to take your new insurance. If they are considered out-of-network, you will have to pay more OOP costs until you meet the deductible. 
5. Depending on your financial situation and incomes, having a higher premium may be a better option because it provides a set amount you pay each month versus the possibility of having to come up with more money quickly to pay OOP costs. 

We offer resources and tips to help you get the best benefits.

With good planning, you can find the best health insurance so you can do your best work.