A health insurance deductible is a predetermined amount that you pay out of pocket for your insurance-covered medical costs throughout the year. Once you meet the deductible, your insurance company will begin to cover your medical costs.[1]
Usually, if you opt for a high deductible, your health insurance costs are lower.
A deductible in health insurance is a set amount that the insurance company requires you to pay out of pocket before it starts covering your medical costs. After you’ve hit the deductible, the health insurance company will pay for a portion of your medical costs until you hit the out-of-pocket limits of your policy. However, you may still need to make copayments when receiving medical services.
Many health insurance plans cover certain services before you meet your deductible. For example, some plans will pay for a preventative checkup or disease management program before you pay the full deductible out of pocket.
Some health insurance plans include separate deductibles for portions of your medical costs. For instance, you might find separate deductibles for prescription drugs and medical visits.[2]
If you’re the only person on your health insurance plan, you’ll have an individual deductible. As you incur medical costs, your insurance company will apply those amounts toward your deductible. When you reach your deductible amount, your insurer will begin covering your medical costs up to the limit of the policy.
Family plans can also have individual deductibles.
If multiple family members are on your plan, you’ll have a family deductible as well as an individual deductible for every member of your family. Every time one of the family members incurs medical costs, the out-of-pocket payment will apply to both their individual deductible and your family deductible.
For example, let’s say you pay $100 out of pocket for a doctor’s visit. The $100 payment will count toward your individual deductible and your family deductible.
Once you meet the family deductible, the insurance company will start to cover costs for everyone on your plan.[3]
Learn More: Do You Need Health Insurance?
A health insurance deductible represents the amount of money you’ll need to pay out of pocket for medical costs before your health insurance begins to pay. After you meet this dollar amount for the year, your insurance company will start to pick up the tab. But you may still need to make a copayment or split future costs with your insurance company.
As you pay for medical costs, it’s critical to make sure your health insurance company is aware of the charges. The charges will count toward your deductible. Most healthcare providers will communicate with your insurance company, but it’s always a good idea to hang onto the receipts of your payments.
In most cases, plans with higher deductibles come with lower health insurance premiums. On the flip side, opting for a lower deductible often leads to higher premiums.
If you don’t meet your deductible for the year, then your insurance company won’t cover your medical costs. But even without hitting your deductible, you might save on your medical costs with the help of your insurance company. Many insurance companies negotiate discounts with healthcare providers, which means you’ll have access to potential savings.
A high-deductible health plan (HDHP) comes with a higher deductible than a traditional plan.
For 2022, the IRS defines HDHPs as insurance plans with an individual deductible of at least $1,400 for an individual or $2,800 for a family and with maximum out-of-pocket expenses no more than $7,050 for an individual or $14,100 for a family. In 2023, those limits are deductibles of $1,500 for an individual and $3,000 for family coverage, with out-of-pocket maximums of $7,500 and $15,000, respectively.[4]
A high-deductible health plan often comes with a lower monthly premium. The potentially lower premiums are attractive to many. But you’ll have to meet a relatively high out-of-pocket deductible before your insurance company starts to pay for medical expenses.
One way that policyholders manage the higher deductible is by saving for healthcare costs through a health savings account (HSA). HSAs are only available to people who have an HDHP. With an HSA, you can set aside funds to cover medical costs, including your deductible and other qualified medical expenses.
An HSA offers tax advantages for savers — the contributions and growth in an HSA aren’t taxed, so long as you only use the money to pay for qualified medical expenses. Each year, you can contribute a predetermined amount to an HSA. For 2023, the IRS has set the contribution limits at $3,850 for individuals and $7,750 for families.
The funds saved in your HSA roll over from year to year, which gives you a dedicated place to build savings for your future medical expenses.[4]
See More: What’s the Difference Between Deductible and Out-of-Pocket in Health Insurance?
Every type of insurance policy comes with some advantages and disadvantages. Here’s what to know about high-deductible health plans:
Lower premiums: Policies with a higher deductible often have lower premiums.
Medical cost discounts: Insurance companies negotiate discounts with providers. As a policyholder, you’ll get access to those savings.
HSA eligibility: An HSA is a tax-advantaged savings tool for future medical costs. You’ll only be eligible for an HSA if you have an HDHP.
High deductible: The high deductible can put you at risk of financial hardship during a medical emergency. If possible, set aside savings to meet your deductible.
Risk of avoiding care: If you know you’ll have to pay out of pocket for medical care, you might avoid seeking necessary medical treatment.
High out-of-pocket costs: If you need a lot of medical care, you’ll face high out-of-pocket costs.
The right health plan deductible varies based on your situation. But you should consider the amount you expect to spend on healthcare expenses and your ability to cover a big medical bill.
People who expect minimal medical costs will typically find savings through an HDHP’s lower premiums. A lower premium means locked-in savings.
However, you’ll still need to consider your ability to cover the deductible. Even if you’re relatively healthy, an unexpected medical emergency might lead to extensive medical costs. If possible, stick with a deductible you can afford.
People who plan to spend more on their medical costs might find more value in a plan with a lower deductible. Although you’ll face higher monthly premiums, you might meet your deductible relatively quickly. After meeting the deductible, your insurance company will cover more of your medical expenses.[5]
If you’re opting for employer-sponsored health insurance, you may not have much choice in your deductible amount. But it’s worth considering all your options before signing up for the employer’s plan.
Check Out: What Is a PPO and How Does It Work?
Health insurance is a complicated product with extensive financial ramifications. It’s natural to have questions when sorting through your options.
A deductible is the dollar amount you’ll pay out of pocket for medical costs before your insurer starts to pay. After you hit your deductible amount, you might still be on the hook for co-insurance. Co-insurance is the percentage you’ll pay toward medical costs after meeting your deductible.
A copay is a set amount you pay for some doctor visits. Depending on your insurance plan, you may have a copay before or after you pay your deductible.
As a general rule, copays don’t count toward your deductible. But the details of your plan might vary. It’s worth checking with your insurer to determine if your copays count toward the deductible.
The out-of-pocket maximum, also called the out-of-pocket limit, is the most you’ll have to pay for covered medical expenses in a plan year. The maximum takes deductibles, copayments, and co-insurance for in-network healthcare services into account. After your costs reach this limit, the insurance company will pay for 100% of the covered benefits.
