How Do Health Insurance Deductibles Work?

What To Know To Save on Health Care

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Health insurance deductibles can be complicated—especially when comparing health insurance plans or figuring out how much your current one will pay for a given expense. Although deductibles generally work in the same way regardless of what type of coverage they apply to, there are several different types of deductibles in health insurance.

We'll look at common deductibles in health insurance policies, what they mean, and how to apply them. With this information, you can get an idea of how much you might spend (in addition to the premium) on your health insurance coverage.

Key Takeaways

  • A health insurance deductible is the amount of money you agree to pay for non-preventive services before your health insurance coverage kicks in.
  • Health insurance deductibles can be complicated because most policies have multiple deductibles that depend on the type of care or coverage, and that apply to one or more family members.
  • If you don't understand how your plan's deductibles work, you could end up paying more than you anticipate for covered services.
  • There are a number of health insurance deductibles, including those that apply to each individual plan member, the entire family, in-network services, out-of-network services, and prescription drug coverage.

What Is a Health Insurance Deductible?

A health insurance deductible is the amount of money you agree to pay for covered services before your health insurance company begins to pay. Once you've reached that deductible, the health insurance company pays a portion of the costs of your care. This is called coinsurance, and it might be split such that the insurer pays 80% and you pay 20%. Instead of a deductible and coinsurance, some plans charge a copayment, or copay, such as $25 or $100, for prescription drugs and office visits. Some plans have a $0 deductible for covered services.

Preventive services provided in-network are typically covered 100% by the insurance company even before you meet the deductible.

If your deductible is $3,000 and you need a medical procedure that costs $2,500, you'd be responsible for the entire amount. If you later require a second procedure that also costs $2,500, you'd pay $500 to reach your deductible. At that point, your insurance would pay a portion of the remaining cost, such as 80%, and you'd be responsible for the remainder (in this case, 20%).

Different Types of Health Insurance Deductibles

Health insurance plans often have different deductibles attached to different coverage categories. And while insurance policies vary, they share a few common types of deductibles.

Health insurance policies with lower monthly premiums tend to have higher deductibles.

Individual Deductible

The individual deductible is how much each member on the plan would need to pay toward covered services before insurance coverage kicks in for their care. If you and your spouse are both on the same health plan and the individual deductible is $1,000, you would need to pay $1,000 toward your own costs, after which the insurance company would start covering its portion of your expenses.

In this example, suppose you spend $1,000 on covered health care and your spouse spends $500. You would pay a coinsurance percentage and any applicable copays for the rest of the year. Your spouse, however, would still pay the full cost of covered care until they met either their individual deductible or the family deductible.

Keep in mind that a deductible does not apply to some types of services, such as preventive care (for most policies). Some policies apply a copay instead of a deductible and coinsurance to office visits and prescription drug coverage.

Family Deductible

Whereas the individual deductible applies to what one person spends on health care, the family deductible applies to expenses for everyone covered by the plan. It's often twice the amount of the individual deductible, regardless of how many family members are on the plan.If the household collectively spends up to the family deductible on covered services, the insurance policy will begin to pay for everyone's covered services, even if some members did not meet their individual deductibles.

In the previous example, your plan's individual deductible was $1,000. Let's suppose this plan also has a $2,000 family deductible. If you spend $2,000 on your own covered care, you would satisfy the deductible for yourself and everyone else on the plan—even though they did not satisfy their individual deductible amount.

In-Network vs. Out-of-Network Deductibles 

Many insurance plans have two additional types of deductibles: in-network and out-of-network. Since some plans, like preferred provider organizations (PPOs), contract with a network of doctors to offer discounted services, they tend to have higher deductibles if you choose to use doctors outside the network. Individual and family deductibles often differ based on whether they are in-network and out-of-network.

For example, a plan with a $1,000 in-network individual deductible might have a $2,000 out-of-network individual deductible. The same plan might have a $2,000 in-network family deductible, and a $4,000 out-of-network family deductible.

In this case, it becomes very important to be aware of which deductible your costs satisfy and what types of care will be covered by your insurance once you meet that deductible. If you satisfy the in-network deductible, the insurance company will pay its portion of in-network costs—but you'll still be on the hook for 100% of out-of-network expenses. And if you use both in-network and out-of-network providers, it will cost you more to reach either deductible amount, which could significantly diminish the value of your plan.

Prescription Drug Deductible

Depending on the type of plan, the category of drugs, and whether drugs are from an in-network provider, they might be covered by a copay alone, a coinsurance amount after a deductible, or a coinsurance amount with no deductible. The applicable deductible could be the larger plan deductible (individual or family) or a specific prescription drug deductible that would need to be met before the policy would cover any prescription drugs.

For example, a plan might cover generics with a straight copay of $25 but cover preferred drugs at 50% coinsurance and no deductible. If a plan has a specific prescription drug deductible, you would have to pay that amount for prescriptions before the insurance company would help with coverage—even if you'd already met the plan deductible.

When comparing health insurance plans, it's also important to make sure the specific drugs you take are part of a plan's formulary. You can view a list of covered drugs when comparing plans using Healthcare.gov's plan finder, as well as the associated costs.

Out-of-Pocket Maximums

Besides deductibles, copays, and coinsurance, another important element affects how much you might pay with your health insurance policy. An out-of-pocket maximum limits the amount you can spend with that plan each year. For example, if your plan has a $5,000 out-of-pocket limit, once you've paid $5,000 toward covered services, your plan takes over and pays 100% of your covered care for the rest of the year.

Expenses that don't count toward the out-of-pocket maximum include premiums and costs that aren't covered by your plan. Plans that charge higher premiums may have lower out-of-pocket maximums.

Different types of coverage, such as care provided by in-network vs. out-of-network providers or prescription drug coverage, may also have different out-of-pocket maximums.

For 2022, the maximum you can spend out of pocket on in-network services for any Marketplace plan is $8,700 for an individual and $17,400 for a family.

Questions To Ask About Your Out-of-Pocket Costs and Deductibles

Since health Insurance deductibles vary between plans and often within a single plan, it's essential to understand the deductibles in your plan and how they can affect your out-of-pocket health care costs.

To understand how much money you will end up paying out of pocket, ask your plan provider these questions:

  • What coverages are subject to a deductible?
  • Are there any coverages that do not have a deductible?
  • What coverages require a copay instead of a deductible?
  • What coverages have coinsurance without a deductible?
  • What are my maximum out-of-pocket expenses?

Armed with these answers, you can better determine which plans make sense for you and if a low-premium plan is ultimately worth it for your specific health care needs.

Frequently Asked Questions (FAQs)

Should you choose a higher deductible on health insurance?

It depends. If you expect to frequently use your health insurance plan, it can be best to pay a little more up front in premium to have lower deductibles and, possibly, lower out-of-pocket maximums. You don't want to be in a situation where you can't afford to pay the deductible and so can't afford care. But if you have an emergency fund that can cover the deductible and you don’t often use health insurance, it could be a good idea—especially if you pair a high-deductible health insurance plan with a health savings account.

Why should you consider a health savings account?

There are advantages to using a health savings account (HSA) paired with a high-deductible health plan, especially if you have a large emergency fund and don't often use health insurance. Money can be deposited into an HSA tax-free and then withdrawn tax-free to pay for eligible health care expenses. Plus, funds in an HSA can be invested and can grow tax-free year after year; as long as the money is ultimately spent on health care, it can be withdrawn tax-free.

Article Sources

  1. Healthcare.gov. "Preventive Health Services."

  2. Healthcare.gov. "Deductible."

  3. Florida Blue. "BlueOptions 1805."

  4. Healthcare.gov. "Out-of-Pocket Maximum/Limit."