A health insurance deductible is a fixed-amount insurance plan that the insured must pay out of pocket each year for eligible medical services to begin paying any benefits.
The amount of the deductible varies depending on the health insurance plan you choose. Generally speaking, the higher the monthly premium you pay, the lower the deductible. Your monthly premium is the amount you pay your health insurance company to cover you.
Even if you pay off your deductible for the year, you may still be responsible for some medical expenses. Most insurance plans have copays, which require the insured to pay a fixed dollar amount as their share of the cost of certain services. Most also have coinsurance payments, which make the insured responsible for a percentage of the total cost of certain services.
key takeaway
- Your health insurance deductible is the annual amount you pay before your insurance plan benefits begin.
- High-deductible health plans require the insured to pay more upfront, but monthly premiums are generally cheaper than low-deductible plans.
- Deductibles are separate from copays, which are the share you may be required to withdraw for certain services.
- There may also be coinsurance payments, which are the assured’s share of medical expenses.
- Those with high-deductible health plans can offset some of the costs by setting up a health savings account (HSA).
- Under the Affordable Care Act, people with lower incomes may be eligible for federally subsidized health care.
How the Medicare Deductible Works
When you buy health insurance, you pay a fixed monthly premium for one year of coverage. At the end of the year, you can continue to cover, although the insurance company may revise the premium amount at that time.
The annual deductible is separate from the monthly premium and must be used up before any service is covered by the insurance company. For example, if the plan’s annual deductible is $1,000 and the patient needs to spend $3,000 on a procedure, the patient will pay the $1,000 deductible and the insurance company will pay the remaining $2,000, assuming the procedure is covered in the under the health plan.
After the deductible is paid, your medical expenses will be paid, minus the monthly premium and any copays owed on those expenses. However, when the new year begins, the deductible clock will reset.
How the deductible is different
Your plan may have several different deductibles for various services. If you have personal insurance, you can pay one deductible for most health care costs and another for prescription drug costs. If you have home insurance, you can pay an individual deductible for each covered person and a family deductible for the policy.
Many insurance plans pay for certain preventive care services without you having to pay any deductibles or copays. For example, routine mammograms for women age 40 and older are fully covered, with no deductibles or copays. This is a federal requirement for the new program.
Insurance companies charge deductibles in part to save costs. The logic is that anyone who has insurance and has to pay out of pocket, if they really don’t need it, will think twice before using an emergency room or medical service.
Americans with health insurance must pay 10% to 40% of their annual medical bills, depending on whether they choose a higher or lower premium plan.
Copays and coinsurance
Once you’ve paid off your deductible, your health insurance plan will bill you for medical expenses, with a few exceptions.
Copays are an exception. Your Copay is the fixed amount you can pay for a doctor’s visit, prescription, or urgent care facility visit. These amounts may not count toward your deductible for the year, and you’ll still have to pay them once you’ve paid off the deductible.
Copays and coinsurance, which is the percentage of your bill for medical services that you will be responsible for after you reach your deductible.
Examples of Copays and Coinsurance
Here are two examples:
- When you go to the doctor, a co-pay of $5.30 is due.
- 10% coinsurance may be required if you are treated in an emergency room.
The amounts you pay for deductibles, copays, and coinsurance all count toward your annual out-of-pocket maximum, which is the total amount you must pay before your insurance plan starts paying 100%.
In 2021, the maximum out-of-pocket cost is $8,550 for the individual plan and $17,100 for the family plan. In 2022, these limits increase to $8,700 and $17,400, respectively.
Medical insurance cost
Medicare is available to those 65 or older. Medicare Part A pays for hospital stays and care. The annual deductible for Part A is $1,484 for 2021 and $1,556 for 2022. Many don’t pay monthly premiums for Part A, and there are no coinsurance charges for hospital stays of 60 days or less.
Medicare Part B covers doctor visits, tests, flu shots, physical therapy, and chemotherapy. Monthly premiums for many Part B participants are $148.50 for 2021 and $170.10 for 2022. Part B deductibles are $203 for 2021 and $233 for 2022.
Average deductible and high deductible health plans
In 2020, the most recent year for these numbers, the average cost of a high-deductible health plan for an individual was $4,971 per year, while the average cost of a low-deductible health plan was $7,816.
Here’s how much the average American pays for health insurance premiums and deductibles as of final 2020:
- Average health insurance premiums for plans under the Affordable Care Act are $456 for individuals and $1,152 for families. The figures do not take into account any insurance subsidies received by low-income people.
- In 2019, according to the latest data, the average annual deductible was $4,364 for individuals and $8,439 for families.
- Those covered by the company’s health plan paid an average of $1,655 in deductibles.
Another fee
These figures do not include copayments or coinsurance.
- Copays are the insured’s share of the cost of certain services. For example, a $30 copay for routine doctor visits is common.
- They also do not include coinsurance. These are similar to copays but as a percentage of the cost instead of a fixed dollar amount. For example, if your plan covers 90% of your hospital stay, you will be responsible for 10% of the cost.
If you’re buying a health insurance plan, each plan offered to you will include a full list of copays and coinsurance for that plan. Most insurers will offer high, medium, and low deductible plans, each with its own specifics.
$2,800
Minimum deductibles for home coverage eligible for high-deductible health plans for 2021 and 2022. The minimum deductible for single coverage is $1,400.
Compare Health Insurance Deductibles
As you can see, there is a big difference in monthly premiums for high-deductible and low-deductible medical plans. However, the actual out-of-pocket cost of any plan includes the premium, deductible, and any coinsurance.
The amount anyone pays out of pocket depends on the individual’s health. A young and healthy person who rarely sees a doctor may bet on a plan with a high deductible and high coinsurance costs. People who need regular treatment for chronic conditions may take a higher-level plan to minimize deductibles and coinsurance costs.
Personal consideration
If you’re in good health and have no health issues, you may not even have enough money to meet your plan’s annual deductible. You have to consider whether it makes more sense to choose a plan with a lower monthly premium and a higher deductible.
If you’re married, you may also need to compare your spouse’s health insurance deductible with the deductible if you choose to enroll yourself in your spouse’s insurance. Depending on the structure of the plan, single-to-family coverage may be more affordable.
If you’re getting health insurance through the federal market or any state market, you can compare the four different levels of coverage to determine which one is best for you.
Health Insurance Deductibles and Marketplace Plans
Plans offered directly by insurance companies are similar to those offered in the health insurance marketplace offered by the federal government and many states under the Affordable Care Act. The marketplace offers four tiers of insurance plans :
- The Bronze plan has the lowest monthly premium and pays an average of 60% of medical costs.
- Silver plans have higher monthly premiums and cover an average of 70% of medical bills.
- Gold plans have higher monthly premiums than Silver plans but cover 80% of your medical bills.
- The Platinum plan has the highest monthly premium and the highest level of protection at 90%.
It’s worth noting that there’s also a catastrophic plan with a very high deductible for those under 30 or those with a hardship or affordability waiver – $8,150 for 2020.
Compare costs
When comparing health insurance plans, important factors are the amount of the deductible, the coverage offered in the plan, and how often you need medical care.
Pricing for all plans depends on your age, whether you smoke, and where you live. The state of your life determines the company that offers you insurance and the price you will pay.
At the Bronze level, you’ll typically have the lowest monthly premiums, but you’ll pay the highest deductibles. The Platinum plan, on the other hand, will offer the largest medical coverage and the lowest deductible.
If you have high bills for routine care, specialists, or prescription drugs, the Platinum plan may be a good option. The trade-off is that the plan will have expensive monthly premiums.
Those who get coverage through the federal marketplace have their eligibility automatically assessed based on income for any cost-sharing discounts. You must be enrolled at the Silver level or higher, but if reduced cost-sharing is available, this will reduce the amount of coverage you pay.
Bottom line
If you’re choosing a health care plan and want to compare costs, you’ll need to do some math: Monthly premium plus copays plus coinsurance equals the plan’s total annual out-of-pocket costs.
Of course, you may not be able to estimate how many doctors visits you will need in the coming year, nor do you know if you will face serious illness or injury.
So do what you know. If you are young and generally healthy, you may be on a high deductible plan. If you get sick, be prepared to cover most of the cost.
If you have frequent health problems that require routine treatment by a specialist, consider a low-deductible plan. You’ll pay higher premiums but should get relief on deductibles, copays, and coinsurance costs.
What is the Medicare Part A deductible?
The Medicare Part A deductible is $1,484 in 2021 and $1,556 in 2022. It pays for hospital time, nursing, and end-of-life care. Most people won’t pay a monthly premium for Part A coverage. There are no coinsurance charges for hospital stays of 60 days or less.
What is the Medicare Part B deductible?
Medicare Part B deductibles are $203 for 2021 and $233 for 2022. Most Medicare participants also pay a monthly premium for Part B, which is $148.50 in 2021 and $170.10 in 2022. Medicare Part B covers doctor visits, tests, flu shots, physical therapy, and even chemotherapy. Basically, all medical expenses do not involve hospitalization or chemotherapy prescription drugs.
Is there a deductible for Medicare Part D?
Yes, usually there is. Medicare Part D is coverage for prescription drug costs. This is an optional extra for Medicare and is available through private insurers, although you can sign up through the Medicare.gov website.
Insurance companies that offer Part D coverage can be found through the Medicare Plan Finder on the Medicare.org website.
Are you paying your deductible with a Medicare Advantage plan?
Yes. For Medicare recipients who want to supplement the coverage they get, the Medicare Advantage plan is one of two options. Both are available through private insurance companies.
Discount plan
A Medicare Advantage plan replaces your Medicare card with a private insurance company’s Medicare Advantage plan card. This insurance company manages your Part A, Part B, and (optional) Part D services and costs.
Its coverage comes with its own premiums ($19 per month on average in 2022), copays, and coinsurance costs.
It will provide additional insurance and additional services at an additional cost. Costs vary widely, as do coverage choices.
Medical plan
Medicare supplemental insurance, called Medigap, covers a portion of the deductible, coinsurance, and copayments for Medicare services.
For example, you can choose a Medigap plan that has lower monthly premiums but requires you to claim a deductible every year. However, if you are hospitalized for more than 60 days, it will cover part of your cost.