Health Insurance Deductible Basics

When assessing which health plan is right for you, it can be tempting to focus only on the premiums deducted from your paycheck. But that amount is hardly the bottom line when it comes to overall costs. It’s also important to understand your health insurance deductible and out-of-pocket max, and how the two work together.

Your Deductible

A deductible is how much you must pay out of pocket before your health plan begins to cover costs. Typically, health plans have a different deductible for an individual than for a family. (Keep in mind that most plans cover in-network preventive care at 100% even if you haven’t met your deductible.)

For example, a typical high-deductible plan may have a $3,500 individual deductible and a $7,500 family deductible. When an individual spends $3,500 on qualified health care costs, their insurance kicks in just for them. When that family spends $7,500, their insurance starts covering costs for everyone—even family members who haven’t accrued many costs that year.

Additionally, many health plans have both an out-of-network and in-network deductible. The out-of-network deductible is much higher, and any out-of-network costs count only toward this deductible. Choosing in-network providers is always the best route to keep costs down.

Your Out-of-Pocket Max

Even after you meet your deductible, your plan may still require copayments (a fixed amount paid when you get care) or coinsurance (a percentage of certain costs) on covered services up to the out-of-pocket maximum. Like the name implies, the out-of-pocket maximum is the absolute most you’ll pay on your health plan on an annual basis (not including premiums). After you hit this amount, your health plan pays for 100% of your covered benefit costs. Good news: Your in-network deductible counts towards your out-of-pocket max.

Deductible and Out-of-Pocket Max Together

Let’s look at an example of how your deductible and out-of-pocket max work together. If your deductible is $3,000 and your out-of-pocket max is $6,000, you are halfway to your max after you’ve met your deductible. Say you have coinsurance, too. After your deductible, you’re responsible for 20% coinsurance, while your plan pays 80% of in-network costs. So if you receive a bill for $500, your plan pays $400 and you pay $100. This continues until you’ve paid an additional $3,000 out of pocket to hit the $6,000 max, at which point covered costs are the sole responsibility of your insurance provider.

How to Keep Costs Down

Use in-network providers and facilities. Make sure your preferred providers are in-network for your health plan before you schedule a visit. Also, plan ahead and familiarize yourself with nearby urgent and emergency care facilities that are part of your plan. In a crisis, this may not be top of mind but choosing an out-of-network facility can cost you dearly.

Take advantage of preventative visits. Most plans cover at least some preventative care, like shots and screenings, at 100%, so take advantage of this opportunity to get free health care.

Choose outpatient procedures when you can. If you have the choice between an in-patient and out-patient procedure, the latter is typically much less expensive. As long as there are no adverse outcomes anticipated, why not choose the cheaper option?

Save on out-of-pocket expenses with an FSA or HSA. If offered by your plan, choose an Flexible Spending Account (FSA) or Health Savings Account (HSA) to set aside pretax dollars for medical expenses.