Chances are you’ve heard the term deductible before, but that doesn’t mean you know what it is exactly.
It’s important to know how much you’ll need to spend out of pocket before insurance starts to pay for covered expenses. Here are deductibles explained which can save you time, money, and stress.
A deductible is an amount of money that you are personally responsible for paying toward an insured loss before your insurance plan starts to pay. This can be either a specific dollar amount or a percentage of the total amount of insurance on a policy.
Deductibles are a form of cost sharing; the insurers splits the cost of care with you. They can apply to all insurance policies including home, auto, and health.
How Deductibles Work
For example, if your plan has a $1,000 deductible, you are responsible to pay the first $1,000 of covered services yourself and after that minimum is met you usually only pay a copayment or coinsurance for covered services. Your insurance company will pay the rest after this amount is reached.
Keep in mind that only what you pay for covered medical costs counts towards your plan’s deductible. Many plans pay for certain services, like a checkup or disease management programs, before you’ve met your deductible. However, certain procedures or services — like preventive care or a visit to a primary care doctor, might not subject to a deductible. That means the insurer will pay the entire cost of the visit minus a small copay, which you pay out of pocket. You can check the benefits page of your plan to find out if this applies to you.
Your deductible resets every year, regardless if your expenses exceeded it the previous year. You’ll need to reach the deductible again each year before your plan benefits start.
Some plans may have an annual cap on covered medical costs, known as your maximum out-of-pocket. This is separate from your deductible, and usually a higher amount. Once you reach this amount, your insurance will pick up the entire bill for all other covered care for that year.
How to Save Money
Generally, plans with lower premiums (monthly payment for the plan) have higher deductibles. Plans with higher monthly premiums usually have lower deductibles.
If you’re mostly healthy and don’t expect to need costly medical services during the year, a plan that has a higher deductible and lower premium may be a good choice for you.
On the other hand, let’s say you know you have a medical condition that will need care. Or you have an active family with children who play sports. A plan with a lower deductible and higher premium that pays for a greater percent of your medical costs may be better for you.
Even if your plan includes out-of-network benefits, your deductible amount will typically be much lower if you use in-network doctors and hospitals.
Here are some potential examples to help explain how deductibles work:
You have a $500 deductible and have your first doctor’s visit of the year. The doctor’s visit costs only $300, so you have to pay it in full because you haven’t met the deductible. You go to the doctor for a second visit, which also costs $300. This time, you only need to pay the provider $200, since you’ve now met the deductible. The remaining $100 will be covered by insurance according to the details of your plan.
You get in a car accident that the insurer determines is a loss worth $10,000. Your policy states a $500 deductible, so you would receive a claims check for $9,500.
You have a $1,000 deductible and have a $5,000 surgery, you’ll have to pay $1,000 out of pocket, and the remaining $4,000 will be covered all or in part by your insurance company.