Health Insurance Deductibles
Lowering Premiums Could Mean Increasing Out of Pocket Expenses
Jan 5, 2008
With the rising cost of health insurance, businesses and individuals are looking for ways to cut the cost of premiums. One way is to increase the policy deductible. A deductible is an amount of money, set by the policy, that the insured will pay before the insurance company pays benefits. They run per calendar year, so on January 1st each year, your deductible will begin again. It is important to understand the different types of deductibles.
Depending on the policy, a deductible can be either comprehensive or non-comprehensive.
Comprehensive Deductibles
These deductibles must be met before benefits are paid by the insurance company. The insured is responsible for submitting copies of paid bills to the insurance company to receive credit toward the deductible. The amount of the deductible can range anywhere from $100 to several thousand dollars.
Example:
If your deductible is $500 annually, you will pay the first $500 of medical bills, no matter what services or prescriptions you need. If you need medical services on a consistent basis, you may meet your deductible fairly soon. Once that is done, the insurance company will pay your bills based on the policy terms.
Many traditional policies offer an 80/20 co-insurance, meaning that the insurance will pay 80% of medical bills and the insured will be responsible for the remaining 20%. With this scenario, if you incur a $5,000 medical bill, your costs would be:
- $500 for your deductible and
- 20% of the remaining $4,500 or $900
Total out of pocket expense - $1,400.
Non-Comprehensive Deductibles
These deductibles work similarly to the Comprehensive Deductibles, however, certain services are not included in the deductible. These could be office visits, emergency room services or prescriptions (prescription coverage sometimes has a separate deductible, in addition to the medical services deductible). In this type of plan, you are still able to visit the doctor and obtain medications if needed, usually with a co-payment. Other services, such as hospitalization, would require a deductible to be paid before insurance benefits begin.
Family Deductible
Many policies offer a family deductible, normally two deductibles. Once two members of the family have met the annual deductible, other members of the family will not need to pay the deductible (from the date the family deductible has been met), and benefits will be paid as if the deductible has been met.
Cumulative Family Deductible
This type of family deductible has a set dollar amount, rather than “2 deductibles” needing to be met before benefits are payable. Many Health Savings Accounts offer this type of deductible for families. For example, if an individual deductible is $2,000, the cumulative deductible may be $4,000. Bills from all members of the family will be counted toward this amount. With this type of deductible, it doesn’t matter who incurs the cost, it is the total of all medical costs that will matter. Medical bills for the entire family will be paid as if all deductibles are met at that point.
No matter whether you receive health insurance through your employer or if you purchase individual insurance, it is important to understand the terms of the policy and what you are required to pay.
References:
Understanding Health Plan Costs, State of California, Department of Managed Healh Care
Questions and Answers About Health Insurance, A Consumers Guide, Department of Health & Human Services
Health Insurance: Picking the Right Coverage to Protect Your Family’s Future, District of Columbia, Insurance: Securities and Banking
