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What is a Health Insurance Deductible

It’s no surprise people cringe at the thought of medical expenses. Anyone who looks at the Explanation of Benefits (EOB) gets a quick picture of how much a treatment or operation costs (Relax. The EOB is not a bill). Paying the expense of any medical procedure is essentially a two-party partnership: you and the insurance company. It depends on the insurance policy, but the insurance company is going to pay a percentage of the total cost and you will have to honor a deductible. Think of the deductible as your responsibility for the overall amount

What Is a Health Insurance Deductible?

A deductible’s definition is straightforward. That is what you are going to pay before your health insurance policy pays for anything. The deductible is an annual figure. For example, if your deductible is $5000, then you will pay up to $5000 worth of medical costs in that calendar year.

The not so good news is that deductibles are going up as health insurance companies try to control their expenses. There are some things you want to know about deductibles and it’s not all bitter medicine.

Health insurance deductibles are unique.

Insurance ordinarily doesn’t provide any assistance until you have paid the deductible. That is not true with health insurance. You can expect that the insurer will pay for some of the benefits before you have met your annual deductible limit.

It is possible to have health insurance that has no deductible.

An HMO is an example of a health insurance plan that can be a zero deductible plan. The trade-off is that you are charged a higher premium because you’re not paying a deductible.

Only covered benefits matter

The health insurance policy does not always cover surgery. Any out-of-pocket expenses for services that aren’t covered by your health insurance will not be credited towards the deductible. The same is true if you paid an out-of-network provider for services, although there are some exceptions to that.

Deductibles renew annually

Knowing this is going to help you do a better job of managing your deductibles. The health insurance deductible covers the period from January 1 to December 31, unless otherwise stipulated in the policy. The deductible renews every year. In other words, if you have a health insurance deductible of $5000 and you spend all of it in the calendar year, your $5000 obligation is reinstated for the coming year and you must meet the $5000 deductible again.

Deductibles are not your only expense

You may still have to cover co-pays and coinsurance, depending on what your policy states. It’s a smart idea to check the policy to learn about your other financial obligations.

Managing Your Deductible

Deductibles are not insignificant costs. An insured is looking at thousands of dollars in deductibles each year. If you are very healthy and rarely use your health insurance, then there is no problem. However, if you are facing surgery or extensive therapy, your deductible can weigh heavily on your finances. Deductibles can be effectively managed and there are several ways to do that.

  • Set Up a Health Spending Account (HSA). You can open an HSA with a financial institution if you are covered by a High Deductible Health Plan (HDHP). You can pay qualifying expenses out of your HSA account, including deductibles, with pretax dollars.
  • Stay within Your Network. You are personally responsible for any services given by an out-of-network provider. It makes better sense to stay within the network, and if you must pay a deductible, you are using up that annual requirement.
  • Schedule Major Treatments within a Calendar Year. The strategy here is to try and schedule all the expensive surgery or therapy within the calendar year. You can consequently use up your deductible, and the insurance can kick in for the additional expenses. Overlapping a year means you are responsible for the deductible amounts in both years.
  • Know Your Coverage. There are medical procedures that cost you nothing or next to nothing. Keep these in mind so that you don’t have to pay any deductible at all in given circumstances.

Living a healthy lifestyle is perhaps the best way to manage the deductible. If you eat sensibly, exercise regularly, and keep away from bad health habits like smoking, your healthcare costs each year can be practically nothing. Having an annual physical enables a doctor to spot a problem before it becomes a crisis and costs you a lot of money.

There is a trade-off in all of this. Having a high deductible means that you will be paying a lower premium. One idea for you is to ask for what the premium would be if you had little or no deductible. Subtract your high deductible premium from that figure and use the difference to establish an HSA or some other means of saving money towards medical treatment. Deductibles will not destroy your budget if you do some sensible planning.

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