How Do Health Deductibles Work?

Health. Insurance. Deductible.

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Three words that don't exactly get the engines revving. And when put together, it makes up what might be one of the least understood concepts in the realm of healthcare. Yet, it is an essential element of health insurance and an important one to know when you consider your overall healthcare expenses.  

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So, what exactly is a health insurance deductible, and why is it so important to understand its role in your policy?

Health Insurance deductible: A quick definition

A deductible is an amount you pay before health insurance kicks in and covers the remaining balance. Typically, it’s considered an annual deductible so applies to the 12 months of your health plan year and then resets for the next year.

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Health insurance plans vary in deductible coverage, ranging from zero (or no deductible) to a very high deductible sometimes several thousands of dollars. The size of the deductible often is based on your health insurance premiums, which is the amount you pay for your health insurance every month. Higher premium plans often have zero or low deductibles. Plans with lower monthly premiums usually have higher deductibles.

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A relative of the deductible is the "out-of-pocket maximum," the limit on the amount an individual has to pay for covered health services in a plan year. This number can be the same or more than the deductible. Once this number is reached, health insurance covers 100% of all additional in-network medical expenses for the rest of the year.

We can’t forget co-insurance and co-pay

Co-insurance is the amount you pay for medical services after you meet your deductible. This amount is a percentage of the total cost of care and varies depending on your health insurance plan. It’s an important detail to know because it also plays a large role in your out-of-pocket costs, which we’ll get to more deeply later on.

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A copay (also known as copayment) is a small, flat fee you pay at the time of service.
Coinsurance, copays and deductibles are examples of cost-sharing — how you and your insurance company share healthcare costs. Not all plans have copays, but many plans have coinsurance.

Now that I know what they are, how do health insurance deductibles work?

Let’s assume the deductible is $5,000. An individual would have to cover $5,000 worth of medical costs before health insurance kicks in and handles additional expenses.

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However, some medical expenses might not apply to the deductible. Preventative services like annual checkups and basic healthcare screenings (mammograms, colonoscopy, etc.) are cases where your insurance policy covers all expenses, and no deductible applies. These covered services are a result of the Affordable Care Act which requires all health insurance companies to fully cover some basic medical care.

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Other health plans will have deductibles that apply to specific treatments or even prescription drugs, so there's a lot of variety regarding health plans.

What are some significant considerations for health insurance deductibles?

When signing up for a health insurance plan, you should always review the plan's specifics, including the exact deductible amount. In addition to the cost of monthly premiums and a related number called out-of-pocket max, co-insurance, and co-pays, the deductible amount should be clearly shared in the Summary of Benefits.

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From there, it's important to dig a little deeper into the plan structure to see how the deductible will be applied. If you have known health care needs, review how the deductible will impact your total out-of-pocket expenses.

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Some high deductible health plans make individuals eligible for a Health Savings Account or HSA. An HSA is a way to save tax-free income for healthcare-related expenses. If a high deductible health plan is your only option, an HSA is a way to reduce your out-of-pocket costs.

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Here’s a sample calculation chart to help you consider your health insurance costs for next year. The same chart can help guide you on how much to put in your HSA, if that’s an option.

What's the best way to monitor and manage your deductibles?

By now you may have a better understanding of how deductibles work, but might be wondering how you track them — whether it’s your individual deductible or family deductible. (Yes, there are often two different ones.) If all of this sounds a bit confusing, well, it is.

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Most recently, certain companies, like us, have eliminated medical deductibles for our health insurance plans. For most carriers (such as the well-known BUCAH: Blue Cross Blue Shield, UnitedHealthcare, Cigna, Aetna, and Humana), high deductible health plans make up a vast majority of their small business health plans.

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Good health insurance plans will make it transparent and easy to see where you are at with your health deductible via a website or app. Check on your health deductible once in a while so you’re informed and not surprised especially, if you anticipate upcoming medical bills.

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Not sure if you or your family member’s doctor visit or other medical care is covered? The best way to avoid unexpected medical bills is to ask before you book the visit.

Here’s the ugly side of high deductible health plans that no one talks about

High deductible health plans were launched as a way to include more cost-sharing between patients and the health insurance company to drive down medical costs.

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But that theory just doesn’t work well in health care. When is the last time you shopped for your x-ray or knee replacement? Exactly. Unlike most other industries, it’s virtually impossible to do ”price comparison shopping” for medical services.

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And yet deductibles are growing as is the percentage of small business workers covered by a high deductible health plans.

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So, is it any wonder that many Americans are confused by their health insurance details? Recent surveys like this one demonstrate this concern with 60% of respondents saying that they sometimes avoided medical care because they weren’t sure if their insurance would cover any expenses. That’s bad news for all sides. Medical delays can cause more serious issues which inevitably cost the patient and system more.

The Decent difference

Decent offers $0 medical deductible health plans almost unheard of for small group health insurance. Doing so gives patients a much clearer idea about their medical costs. No guessing or math formulas. Simple, easy, health care.

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We didn’t stop there. If easy access to primary care can help people avoid visits to the emergency room, then why not make it super easy and convenient?

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Free and easy primary care is the foundation of Decent’s health plans made possible via our direct primary care network. Decent health plans are one of the only ones around that offers DPC as part of our network which was a no-brainer for us. DPC patients have benefits that you simply can’t get anywhere else like longer visits, the ability to text message or video chat, and even same or next day visits.

For more information about Decent PEO, contact our sales team at support@decent.com.

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