How do Health Insurance Deductibles Work?

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There are many factors to consider when choosing a health insurance plan. All of the different terminology can seem overwhelming at first. Deductible, Copay, Coinsurance. You might be wondering what all of this means and how it affects you. Understanding what you will be required to pay out of pocket is key to finding a plan that works with your budget but also provides you with the coverage you need. Your health insurance deductible is a very important part of your plan and understanding what it is will help you make the best decision about what health insurance plan is right for you. We’ll cover the basics of what a deductible is, and how it’s different from a copay and coinsurance.

Health Insurance Deductible – What it is and How it Works

A health insurance deductible refers to the amount of money you will need to pay out of pocket before your insurance company pays anything. Every insurance company offers various plans with different deductibles that often influence the final premium. This means that according to your agreement, you might need to pay from a few hundred to a few thousand dollars out of pocket before your insurance company will begin covering medical expenses. There are typically separate deductibles for medical treatment and prescriptions.

For example, if you have agreed upon a deductible of $1,000, you will need to cover the full cost of your medical expenses, until you reach this amount. After this point, your expenses will be shared with your insurance plan, through coinsurance. On thing to keep in mind with health insurance is that that insurance networks have negotiated rates with healthcare providers that are much lower than what you would pay without insurance. Even though you are paying money out of pocket towards your deductible, what you are paying is much less than it would be if you were to not have health insurance at all.

How is a Health Insurance Premium Different from a Deductible?

You will be required to pay money towards your deductible only when you need to be treated and use your health insurance plan. However, this is not the case for your premium, as it is the amount you have to pay monthly. This means that you will pay the premium you have agreed with the company, for as long as your plan is in effect.

The health insurance premium’s price is affected by many different factors, like your demographics, the members you would like to insure, and the coverage that you need. Nevertheless, some tips and tricks help you save on your premium, with deductible being one of them. Typically, the higher your deductible is, the lower your monthly premium will be.

The Difference Between Copayment, Coinsurance, and Deductible

In addition to deductibles, you will also need to pay a copay and coinsurance. Similar to deductibles you will only be required to pay copays and coinsurance when you use your health insurance plan for medical treatment or prescriptions.

A copay is a fixed rate you will need to pay for doctors visits, prescriptions, and other medical care. For example you might have a copay of $15 to see your primary care doctor. Specialist can require a higher copay such as $75 or more. Prescription drugs are broken into different tiers by health insurance companies. Your copay for generic drugs will usually be lower than it would be for a brand name drug. Depending on what tier your medication falls under you will have a different copay amount.

Coinsurance is the percentage of costs that you are required to pay after you have met your deductible. This means that after you have met your deductible, your insurance plan will cover a percentage of expenses that are covered under your policy. For example, if your coinsurance is 30% for a service your plan will pay 70% of the cost and you will pay 30%. Once your reach your out-of-pocket maximum your insurance will cover the full cost for covered expenses.

On thing to keep in mind with coinsurance is that your insurance company will only pay expenses that are covered under your plan. If you have expenses for a service that your plan doesn’t cover you will be required to pay the full cost of the bill. You can review your health insurance plan or speak to an agent to confirm if a particular service is covered under your plan.

Is a High or Low Deductible Better?

One way that you can get a more affordable premium is by choosing a higher deductible. If you choose a higher amount for your deductible your monthly premium will be lower, but you will need to pay a greater amount of money for medical expenses before your coinsurance kicks in. For example with a $5,000 deductible your monthly premium would be lower than with a $1,500 deductible, but you will need to pay $5,000 out of pocket before coinsurance begins. On the other hand, if you go for a lower deductible, your monthly premium will be higher, but you will need to pay less money out of pocket before coinsurance starts. For this reason, a higher deductible is usually a great choice for young and healthy people, who don’t run the risk of using their insurance often. If you are planning to become pregnant or have a chronic medical condition that requires frequent doctors visits or treatments it may make more sense to have a lower deductible.