When you buy a health insurance plan, you have to pay an annual deductible. Depending on your plan, it may be low or high. What happens if you can’t pay it?
This article discusses what an annual deductible for health insurance is, the difference between annual deductibles and per-episode deductibles. You will also learn about no deductible policies, out of pocket expenses, Health Savings Account, and what to look out for when shopping for health insurance.
An annual deductible is a set sum you are required to pay every year towards your healthcare expenses before your health insurance policy fully kicks in to pay. An annual deductible has a validity period of a year and resets once the calendar year ends.
The information in this article is accurate as it has been collated from reputable sources such as the various states' Department of Insurance, Healthcare.gov website, numerous health insurance providers, and health insurance industry watchers.
How Does Your Annual Deductible Work?
A health insurance deductible is a particular amount that a policyholder has to pay before their plan starts paying for their healthcare expenses. You should note that not every insurance policy comes with a deductible.
And the ones that do have one usually have varying prices. Your deductible is only active for a year, meaning that it rolls over, and you will have to meet your deductible for the new year before you can benefit from your health insurance plan.
You should remember that only expenses on covered medical costs count towards your deductible. An annual deductible refers to your health insurance benefits and coverage payment, valid for a year.
In other words, the sum you get as your health insurance policy deductible is valid for that year only and rolls over the next year. Even if you meet your deductible within the year, the moment the new year begins, you start all over again.
Your annual deductible can be an excellent way for your health insurance provider to share the policy's expenses with you. Your health insurance provider will issue higher premiums to cover the shortfall in the absence of a deductible.
The price you pay as your annual deductible depends on the health insurance policy. Policies on the higher metal tiers such as platinum or gold policies generally have higher premiums but lower deductibles.
The inverse is valid for the lower metal tiers as they have higher annual deductibles but lower premiums.
The higher your deductible, the lower you can expect your premium to be. Typically, the amount you pay for your deductible depends on your health insurance plan. How much coverage does your plan offer? If these benefits are a lot, you may expect high deductibles.
If you have high deductibles, it's nothing to worry about if you can afford it initially. If you can't, then you may consider another insurance plan. Check out these articles on what premiums and high deductibles mean for you.
A Few Things To Bear In Mind
Every policy gotten from the Marketplace has to cover the entire cost of approved preventive benefits before your deductible requirement kicks in. Plans that are ACA-compliant are legally mandated to do this.
These services might include vaccinations, wellness checkups, or even preventative screenings. Every one of these benefits has to be covered without any cost-sharing, regardless of your deductible.
You should also know that cost-sharing facilities such as coinsurance and copays don't count towards your annual deductible. Coinsurance and copays do not become active until you meet your deductible.
They are only required when your health insurance policy begins to pay its share of your healthcare costs. Before meeting your deductible, you will have to foot the entire bill for your covered services.
Unlike individual plans, family health insurance policies can have 2 deductibles. You can have a unique individual deductible that applies to every person under the plan and a family deductible applicable to the entire family.
Once your plan's required out of pocket maximum has been reached, your health insurance policy takes on the entire cost of your healthcare for the remainder of the year.
What If I Don't Have A Deductible?
Not having a deductible meant that your coinsurance and copayments are going to be comparatively higher. A copayment is a fixed payment that you make every time you use a healthcare service. This service could be visiting the doctor's, purchasing prescription drugs or using the emergency room.
Just as your copayment is high when you don't have a deductible, your coinsurance will also be high. A coinsurance is the percentage your health insurance policy requires you to pay for approved benefits.
Typically, a coinsurance rate for health insurance policies with annual deductibles stands at 20%. If your policy doesn't have a deductible, your coinsurance rate can be as high as 40% when you visit an approved healthcare provider.
Visiting an out of network healthcare provider could raise your coinsurance rate even higher.
Out of Pocket Costs Vs. Deductible
Your out of pocket costs and annual deductible are extremely similar expenses. Your deductible is what you pay every year before your health insurance policy begins covering your medical expenses. This means if your deductible is $400, you won't be able to make a claim till your overall healthcare costs reach $401.
Your maximum out of pocket cost deals with the largest sum you pay every year once your deductible limit has been reached. This includes your coinsurance and copays.
Annual Deductible Vs. No Annual Deductible
When your health insurance policy has an annual deductible, you can be sure that your health insurance policy will pick up the rest of your medical expenses once you reach the deductible limit.
A health insurance policy that doesn't have an annual deductible might make it much easier for a policyholder to seek medical attention or visit the doctor. This is because there isn't any out of pocket cost to meet before the health insurance policy becomes active.
Annual Deductible Vs. Per-Episode Deductible
A per-episode deductible differs from an annual deductible as it happens every time you receive a particular service. If, for instance, your insurance policy requires you to pay $2,000 in deductibles every time you get hospitalized, this would have to be paid in full before your health insurance kicks in.
Some health insurance policies refer to this deductible as a copayment. However, given how large the amount is, it becomes a deductible. While not as common as annual deductibles, there are per-episode deductibles health insurance policies out there.
A great example of a per-episode deductible plan is Medicare Part A. While not a true per-episode policy, it does assess deductibles using benefit periods instead of calendar years. This means it is possible to pay the policy's deductible at least twice in a calendar year.
A per-episode deductible can be advantageous in certain circumstances. For one, if you happen to be hospitalized in December, you wouldn't have to pay your deductible again if you are still in the hospital when January comes.
This might not seem significant; however, annual deductible plans rollover once the new year starts, so you might have to pay your deductible for the same service simply because the calendar year changed.
Low Or High Annual Deductible: Which One is Better?
As stated earlier, health insurance deductibles vary from one policy to another. This is why it is pertinent to compare policies carefully. Higher annual deductibles are generally evened out by lower premiums or cost-sharing.
The inverse is true for lower annual deductibles as they have high premiums and out of pocket expenses. Some health insurance policies, such as HMOs, don't have any sort of deductibles. These policies are called zero-deductible policies.
Zero-deductible policies generally have comparably higher premiums, with the inverse being true for high deductible policies.
A zero-deductible policy is best suited to those that have multiple prescriptions or frequently see doctors. This is because such a policy can suit their coverage and budget requirements.
Conversely, for people that are healthy and don't frequently use medical services, a higher deductible plan would make more financial sense. The higher deductible would be offset by low premiums, which could mean you pay much less in the long run.
What Are Health Savings Accounts?
While paying lower monthly premiums can seem appealing in the beginning, you have to think about how many healthcare services you might require during the year, not only for yourself but also for your dependents.
If you decide to pick a high annual deductible health insurance plan, you could become eligible for a HAS or Health Savings Account. A HAS enables you, as well as your employer, to deposit a set amount of money pre-tax towards medical expenses.
HSAs have a high annual deductible that has to be met before your covered benefits become active.
No Charge After Deductible, What Does That Mean?
The phrase simply means that once your annual deductible has been met, your health insurance policy steps in to pay the rest of your medical expenses for the remainder of the year.
With such a policy, you won't have coinsurance, copays, or other out-of-pocket expenses.
You must understand that while your copays do not count towards your annual deductible, they do count towards your plan's out of pocket costs.
How Do I Know Which Health Insurance Annual Deductible Is Best For Me?
Every individual's situation and needs are different. Finding something that suits your need will wholly depend on your budget, health condition, and how much you are willing to pay.
When you consider your options, ensure that you take your time and shop around. Don't be afraid to compare costs. Whatever you do, always remember that not only coverage varies from policy to policy. Annual deductibles as well as various out of pocket expenses also differ.