What is a deductible?

Health plan terms can be confusing, especially if you’re not familiar with them. For example, the deductible is an often misunderstood part of health insurance. Not all plans have a deductible. But learning what it is and how it works is an important part of understanding how different health plans work. And this can help you find the best plan to fit your needs.

How does a deductible work?

The deductible is a set amount of money you need to pay before your health plan starts paying its share of the costs. Let’s say your health plan has a $1,000 deductible. This means you’ll need to pay the full cost of your medical care until you’ve spent $1,000. Once you reach this amount, your plan starts paying its share of the costs. And you start paying less — typically, just copays or coinsurance:

• Copays are a fixed amount of money you pay for certain services covered by your plan, like $20 for a doctor visit.
• Coinsurance is a percentage of the cost you pay for certain services covered by your plan. This means if a procedure costs $100 and your coinsurance is 20%, you’ll pay $20.

You can find the specific costs you’ll need to pay in your health plan’s coverage documents.

Deductible vs. premium: What’s the difference?

The deductible is the amount you need to pay for care before you start paying copays or coinsurance instead of the full cost. The premium, also called the membership charge, is what you pay every month for having health care coverage. Typically, the higher a plan’s premium, the lower its deductible. And the lower a plan’s premium, the higher its deductible.

What costs count toward my deductible?

The money you spend on most medical services covered by your health plan will get you closer to paying off your deductible. For example, when you spend $200 on covered services, that’s $200 less you need to pay toward your deductible. Medical services covered by your plan may include virtual care, primary care, specialty care, urgent care, and emergency care.

Some plans have a separate deductible for prescription drugs. Depending on your plan, you may need to pay the full cost of your medications until you reach the prescription drug deductible. Once you reach this amount, you’ll pay just copays or coinsurance for your prescriptions.

Some medical costs won’t count toward your deductible

Costs for services not covered by your plan won’t get you closer to reaching your deductible. Instead, you’ll always need to pay the full cost for these services. Make sure to check your health plan’s coverage documents before getting any care that isn’t recommended by your doctor. Another cost that doesn’t count toward your deductible is your health plan’s monthly premium or membership charge.

What is a family deductible?

Deductible plans for families usually include a single deductible amount for the whole family enrolled in the plan. This is the combined amount of money your family needs to pay for care before your health plan starts paying its share of the costs. When one or more family members reach this amount, the entire family will start paying copays or coinsurance instead of the full cost for care.

Many family deductible plans also have an individual deductible for each person covered by the plan. When a family member reaches their individual deductible, they’ll start paying just copays or coinsurance. The rest of the family will continue paying the full cost for care until they reach their own individual deductible or the shared family deductible is met.

For example, let’s say you have a family plan that covers you, your spouse, and your child. If your plan has a $1,000 family deductible and $500 individual deductibles, here’s how it might work:

• If you, your spouse, and your child pay $1,000 in combined medical costs, you’ll meet your family deductible. Then you’ll all pay just copays or coinsurance for covered medical care for the rest of the year.
• If you pay $500 for care before the $1,000 family deductible is met, you’ll reach your individual deductible. Then you’ll pay just copays or coinsurance for your care. However, your spouse and child will continue paying the full cost for care. When one of them meets their $500 individual deductible or if they pay $500 in combined medical costs, together you’ll meet the $1,000 family deductible. Then everyone will start paying just copays or coinsurance.

Is it better to have a high deductible or a low deductible?

High and low deductible plans each have different benefits and drawbacks. To decide which is best for you, first consider your health, health care spending, and budget. Then see how a high or low deductible can meet what you’re looking for in coverage and cost. Here are a few tips to help you decide:

Plans with higher deductibles may be best if you’re healthy and need only routine preventive care during the year. A higher amount may also make sense if you want to save money with lower monthly premiums. But you need to be comfortable taking on the full cost of your care before your plan starts paying its share. And if you enroll in a high deductible health plan, you can open a health savings account, or HSA. This is a bank account where you can set aside tax-free money to pay for future medical care. You can even invest your savings, like in a mutual fund.

Plans with lower deductibles may be the way to go if you want your health plan to start covering costs sooner rather than later. This may make sense if you have an ongoing illness like diabetes. Or if you know you’ll be getting costly medical care throughout the year. Or maybe you want fewer large medical bills and more predictable costs like copays and coinsurance because you like to keep a tight budget.

Want more information? Check out our article about how health plan costs work or visit kp.org/deductibleplans.