What’s a Health Insurance Deductible, and How Does It Work?


WRITTEN BY: Craig Sturgill

UPDATED: NOVEMBER 02, 2022 | 3 MIN READ

Before you enroll in a health insurance plan, you should pay careful attention to your plan’s annual deductible. Deductibles vary by plan, especially if you buy a health insurance plan through the Affordable Care Act (ACA) Marketplace. Here’s a primer on deductibles to help you make an informed decision on your new healthcare plan.

What Is a Deductible and How Does It Work?

Health insurance policies feature a deductible or a set amount you need to pay for your medical care. Your deductible resets every year. Each time you go into a doctor’s office or seek a health care service, you receive a bill. You pay your medical providers, such as your doctor’s office or a radiologist.

Once you meet your deductible with your medical payments, your health insurance company covers the payments for your health costs. Your plan may also require coinsurance or copays after you meet your deductible; this varies by company.

What Counts Towards Your Deductible

Each health insurance policy lists what expenses the carrier will count toward your deductible. Only covered “medically necessary” costs count toward your deductible. Your plan may also have a separate prescription drug deductible.

If your plan doesn’t have a prescription deductible, any payments you make for covered drugs will go toward your annual deductible. If you’re on Medicare, you will have a deductible for Medicare Parts A and B, and possibly, Part D, prescription drugs.

Thanks to the ACA, your health plan will cover preventive care services, such as wellness visits and immunizations, even if you haven’t met your deductible.

What Doesn’t Count Towards Your Deductible

Not every payment you make for medical expenses will help you meet your deductible. For example, if your policy doesn’t cover a medical service like acupuncture, your payments toward those services don’t count toward your deductible.

The following typically don’t count toward a deductible:

  • Copays (unless specified in your healthcare plan documentation)
  • Monthly premiums
  • Cosmetic surgery (unless deemed medically necessary)
  • Dental work
  • Fertility treatments (vary by plan)
  • Weight loss surgery or programs

You also won’t get credit for any payments for out-of-network services unless you receive the care in an emergency.

Deductibles vs. Co-Pay vs. Coinsurance

In addition to a deductible, your healthcare plan will often include a co-pay and coinsurance. These terms aren’t interchangeable. The copay is a set amount for medical services, such as urgent care services, specialist visits, and visits to your primary care provider.

You pay your copay every time, even if you haven’t met your deductible. While your copay amount doesn’t apply toward your deductible, it does count for your annual maximum out-of-pocket expenses.

Coinsurance is a percentage of the out-of-pocket costs you will pay after you meet your deductible for covered services. If your carrier states the coinsurance is 80/20, and a visit to your allergist costs $150, you would pay $30, or 20% of the visit. The health insurance company would pay 80%, or $120.

What Are High Deductible Health Plans and How Do They Work?

A High Deductible Plan (HDHP) is a health plan with a higher deductible than other insurance plans. The IRS’ definition of an HDHP is any with an individual deductible of $1,400 or higher for an individual and $2,800 for a family. HDHPs also come with an annual out-of-pocket cap of $7,050 for individuals and $14,100 for families for in-network services.

An HDHP is a good choice if you want an affordable plan and don’t need much care. These plans have low monthly premiums plus cover routine preventative care such as screenings and immunizations.

Health Savings Accounts (HSA)

HDHPs work with HSAs, which helps you save money for health care expenses. You can save money in a tax-free account that rolls over each year, meaning you can carry the balance forward to pay for unexpected medical bills if needed. Your money in the HSA can pay the deductible on your high-deductible health plan. HDHPs and HSAs are good economical choices if you don’t have regular medical bills or chronic conditions.

FAQs

What is a deductible on health insurance?

A deductible is an amount you must pay for medical costs before your health insurance company starts to cover payments.

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

A low insurance deductible is a better choice for you if you have a chronic illness or condition with expensive medical costs. You’ll often have a higher premium, but you’ll meet the deductible faster than if you had a very high deductible. If you’re relatively healthy and don’t visit the doctor often, you might want a high deductible because you’ll have a low monthly premium.

What does it mean to have a $1,000 deductible on your health insurance?

If you have a $1,000 deductible, you must pay at least $1,000 for your covered services. After you pay your $1,000, your health insurance company will cover the rest.

Is it better to have a deductible or no deductible on your health insurance?

It’s better to have a zero-deductible health plan if you often have expensive medical care.

Is it good to have a health insurance deductible?

Deductibles and monthly premiums, the price you pay for health insurance, work together. A lower monthly premium will often mean a high deductible. You should determine how you approach your healthcare costs and what you typically pay.

How To Lower Your Health Insurance Deductible

Sifting through health insurance plans can be confusing, especially if you’re trying to choose the right plan with a decent deductible. Whether you choose a plan with a higher premium but a low deductible or a healthcare plan offering a low deductible at a higher premium, don’t forget to compare rates for the best deal that meets your needs.