Explain Health Insurance Deductibles

by Gregory Hamel

    Health insurance coverage is essential for financial responsibility, because unexpected health problems can lead to large medical expenses. Health insurance can cover many medical expenses, but insurers typically impose thresholds called deductibles. Before the insurance company picks up any of your medical expenses, you must pay the amount of your deductible out of your own pocket. Deductibles force patients to bear some of the cost of paying for their health care, which allows insurance providers to offer plans with lower monthly fees.

    Health insurance plans have annual deductibles. As you receive medical care throughout the year, you pay money out of your own pocket for certain types of care, up to the amount of your deductible. As soon as you meet the annual deductible, your insurance company pays for further costs of care that's covered, and you don't pay the deductible again until the next benefit year.
    Some health insurance plans cover certain types of care, such as routine doctor's visits and preventive care, without you paying a deductible.
    The amount of deductible can vary according to whether care is received from providers that are approved or preferred by your health insurance company, or from providers outside its approved network.

    The deductible on your health insurance plan can affect the monthly fees, or premiums, that you pay. In general, plans with low deductibles have higher premiums than plans with high deductibles.
    Choosing a plan with a high deductible can reduce the monthly cost of insurance, but a high deductible can result in large out-of-pocket expenses. For example, a young person might choose a health plan with a $10,000 deductible to save on premiums. If he happens to need a major operation, he could end up paying $10,000 out of his own pocket.

    Co-insurance is a form of medical cost sharing in which a patient splits the cost of care with an insurance provider. For example, if a plan requires 20 percent co-insurance for a certain type of care, the patient has to pay for 20 percent of the cost of care and the insurance company pays 80 percent. A health insurance plan can require you to pay a co-insurance share even after you meet your annual deductible.

    A copay or copayment is a fixed amount that a patient has to pay for certain types of health care. Health insurance plans often mean copays on prescription drugs, outpatient care, emergency room visits and routine physicals. An insurance provider might require copayments after you meet your deductible, just as it might on co-insurance. Copays and coinsurance can result in significant out-of-pocket expenses even after you pay your annual deductible.

    About the Author

    Gregory Hamel has been a writer since September 2008 and has also authored three novels. He has a Bachelor of Arts in economics from St. Olaf College. Hamel maintains a blog focused on massive open online courses and computer programming.

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