That Health Insurance Deductible!

The days of the insurance company simply paying all one’s medical bills are long gone for almost everyone. Nowadays, deductibles are the norm for those using health insurance. By gaining a better understanding of deductibles and other out-of-pocket expenses, people can be better prepared and save some money in medical expenses.

Reasons for deductibles
Health insurance deductibles are more than just a way for insurance companies to avoid having to pay out to the insured; they also put greater efficiency into the system. When people know they will have to pay a deductible, they are more likely to avoid frivolous hospital visits. Also, when smaller claims do not have to be submitted and processed, it saves administrative costs. All else being equal, deductibles lower costs and save everyone money.

How deductibles work
Health insurance deductibles work much the same as deductibles for auto and other forms of insurance. They are a non-reimbursable amount that must be paid by the insured before they can begin to collect from their insurance company for expenses. For example, if someone’s plan has an annual deductible of $1000; they will only be able to collect from their insurance company for the part of their annual medical expenses in excess of $1000.

It should be kept in mind that individual and family deductible amounts are different and that the deductible amount will start over again at the end of the year. Services such as doctor visits may be available without paying a deductible so everyone should examine their plans to make sure they are not paying when they do not need to.

On the other hand, some plans have separate deductibles for prescriptions and mental health services. Even paying the full amount of one deductible will not reduce another.

Other out-of-pocket expenses people face:

Coinsurance
This determines what percentage will be paid by the insurance company and what percentage the insured must pay. For example, if it is a common 80/20 split, the insurance company will pay 80% while the insured will pay 20%. Note that the coinsurance payments start after the deductible has been paid in full.

Copayment
Copayment is similar to coinsurance. However, it is a set amount and not a percentage.

Out-of-pocket limit
On the brighter side of deductibles and other payment expenses, plans generally have a yearly out-of-pocket limit. Once this limit is reached, the insurance company will take up the entire tab as long as the lifetime limit is not exceeded.

Optimal amount for deductibles
Many people regard deductibles as something to be minimized at all costs. While they are obviously not anything people want to pay, simply trying to minimize them is not always the best option. Medical deductibles were introduced to save money and can help the insured too if they reduce premiums more than they cost over time.

With this in mind, when offered a choice, the optimal deductible amount is primarily a math problem that will depend on the circumstances of the insured. Obviously, for those virtually certain to have medical expenses, the minimum possible deductible may be in order. Those who do not usually have medical expenses probably should take the gamble and go for the larger deductible since they are likely to save money that way over the long run.

Also, remember that deductibles can be paid from medical savings accounts, and the tax savings these accounts offer may be another reason to go with a higher deductible.

Of course, the best way to avoid having to pay deductibles is to stay healthy so one does not incur medical expenses at all. Perhaps keeping this in mind can serve as motivation to stay healthy.

While deductibles require some planning, they do keep medicals expenses lower than they would otherwise be. With a proper understanding of what they entail and the different options, medical expenses can help control costs. They are not the only out-of-pocket expense though so everything needs to be carefully looked at.

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