An insurance deductible is an amount you must pay out of your pocket before the insurance coverage starts to pay for your medical expenses. Let’s assume you have an insurance plan with a deductible of $1,000. During your stay in the hospital, your bill is $20,000. You will be required to pay the first $1,000 out of your pocket and then your health plan will take over and pay benefits for the remaining amount, according to the terms and conditions of the policy. The idea behind the deductible is to keep premiums low via cost-sharing and by decreasing the number of small claims and unimportant visits to the doctor. As you would expect, those whose health coverage includes a deductible will find no need to see a doctor for every cough, runny nose, bruise, or bump.
How it works
Look at a deductible as a part of your insurance deal. When you are purchasing health insurance, you are covering yourself for unforeseen situations such as accidents and unexpected chronic illnesses that may lead to recurring expenses. By taking the health insurance plan, you want the insurance company to take care of your bill, which can otherwise take a toll on your pocket. The insurance will always agree to cover you, but on the condition of you paying a deductible. Depending on the initial amount you agree to spend, the insurance company will inform how much they will charge you based on the risk.
Your deductible amount
Health insurance plans are different, and so the deductible amounts can vary significantly from one plan to another. Usually, you are the one responsible for determining the amount of money you want to pay. Think of a deductible as a bit of self-insurance. Generally, the more the deductible, the lower the cost of your health plan. By covering a higher risk via a deductible, you leave the health insurer with a lesser risk to take care of. This usually leads the insurance company to reduce costs on their part. Some health insurance policies may have a minimum deductible amount of which you must adhere to the terms. As a matter of fact, the minimum deductible can vary by policy and state.
Choosing a deductible
This is where you need to select carefully between high and low deductible plans. As a rule of thumb, a high-deductible plan saves money on monthly premiums while a low deductible plan increases monthly premiums. High-deductible insurance covers are also known as “consumer-directed” plans, whose deductibles exceed the limit set by the IRS on individual coverage and family coverage. Keep in mind that every individual with a high-deductible plan qualifies for an HSA (Health Savings Account). HSA’s allow individuals to set aside a particular amount of money for medical expenses. If your health plan is sponsored by your employer, the company should directly contribute to your HSA. Probably the main advantage of HSA is the lack of taxation, which allows you to make some reasonable pre-tax savings. The downside is meeting the insuperable amount of deductible itself. As such, high-deductible plans are ideal for single individuals and those who are generally healthy. A few doctor visits a year will not cause a financial setback for a healthy individual. Along these lines, it is crucial to consider if you can afford a high-deductible plan in a medical emergency. It is not a good idea to put yourself in a tough situation where you cannot manage to pay the deductible.
So, think ahead when choosing a health plan because this is not about the cost, but rather about the quality of health care coverage you will receive.