Deductibles refer to a predetermined amount you have to pay out of your own pocket for medical services before your insurance begins to pay.
To truly understand what a deductible is, we have to introduce a couple of other terms.
First, there’s copayment. Copayment is the amount you have to pay based on your insurance coverage for every medical procedure you avail. Again, depending on our policy, some services may or may not require a copayment.
The next term is co-insurance. Once you have maxed out your agreed deductible, then the cost of medical services becomes shared. The exact coverage will depend on your policy, but either way, the cost will be shared between you and the insurance provider.
Out-of-pocket costs (and the maximum thereof) refer to the maximum amount of money you have to shell out before your insurance covers everything.
How are all of these terms related to each other?
Picture this scenario. You’re paying an xxx amount of dollars as a premium for an insurance policy that has a deductible of $2,000, a maximum out-of-pocket cost of $4,000, a copay agreement of 20%, and a co-insurance agreement of 50-50.
Last year, you needed medical attention, and during your first hospital visit, you were charged $2,000. Does your insurance kick in? Not yet. Since $2,000 is well within your deductible, then you have to pay this on your own.
Later on, you needed another medical intervention. This time, you were charged $4,000. Does your insurance kick in? Yes. Since you have maxed out your deductible, co-insurance will enter the picture. Remember the policy agreement for co-insurance? It’s 50-50, so when applied to the $4,000 medical bill, this means you will shoulder $2,000, and the rest will be paid by the insurance. This also means you have maxed out your maximum out-of-pocket cost.
Much later in the same calendar year, you needed another medical intervention. This time you were charged $5,000. Does your insurance kick in? Definitely. How much will they cover? The entire bill. Why? Because aside from maxing out your deductible ($2,000), you have also maxed out your total out-of-pocket costs ($4,000), thereby ticking all conditions for the insurance to cover everything.
What does this imply?
From the example above, you will get an idea of how deductibles work and how you can use them to determine the right insurance coverage for you.
Deductibles in real life are rarely as low as the above example. According to the latest data, the average deductible during the open enrollment period was $2,835.
A plan with a higher deductible means you have to shell out more of your own money before the insurance provider steps in. While this may seem unattractive, people choose this because it typically has lower premiums (the amount you have to pay to stay covered by the health insurance—think of it as a subscription fee). On the other hand, plans with lower deductibles cost more, premium-wise, BUT it means that once you have reached the maximum, then you will pay less medical costs overall since your provider steps in sooner.
You can choose high premium, low deductible plans if you are frequently in the hospital in a given year. In our example, the worker was hospitalized 3x in a year, so he was able to make the most out of his plan. If you don’t see yourself getting hospitalized that often then a low premium, high deductible plan might work out for you.
Deductibles are an important consideration when picking which insurance plan to get. Don’t just get the one with the lowest premiums because chances are the deductibles are often too high, rendering the plan useless in some cases. So choose wisely depending on your needs.
Let us provide you assistance! If you live in the state of Minnesota, contact us today to be connected with one of our certified MNsure Navigators (native in multiple languages) and we’ll walk you through the process in person or over the phone at no cost to you!