Health Insurance Deductibles: How Do They Work?

March 14, 2023

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A health insurance deductible is a set amount you must pay out-of-pocket before your health insurance starts covering the costs of your in-network medical care. The deductible goes toward services such as non-preventive doctor appointments and lab tests. It can also apply to medical procedures and hospital stays.

A health insurance deductible is the amount your insurer expects you to pay for non-preventive services before the plan starts paying.
There are several types of deductibles that apply to individuals, the entire family, in-network and out-of-network services, and prescription drugs.
A high-deductible plan might be a viable choice for people with money set aside to pay the deductible or who don’t need non-preventive medical services.
A low-deductible plan might work for people with chronic medical conditions or larger families that need regular medical care.
Deductibles are a separate expense from premiums, coinsurance, and copayments, but all these can be applied toward out-of-pocket maximums.

What counts as a deductible?

Some plans require a separate deductible for health care and prescription medications. They may also have different deductibles for in-network and out-of-network services.

Yes	No
Doctor’s visits not covered by a copayment Lab tests Hospital bills Surgery MRIs CT scans Medical devices such as CPAP machines	Premiums Copayments Money paid to out-of-network providers (except emergency care)

How do insurance deductibles work?

How your deductible works depends on your health plan’s cost-sharing structure. If your plan requires that you pay the deductible first, you must pay for all your medical expenses until you meet your deductible.

Let's say your policy specifies a $2000 deductible. That means that you must pay the first $2,000 of your covered medical expenses out-of-pocket. Your insurance will handle any expenses over that limit, subject to how your plan works. Some plans waive the deductible for certain services like preventive care or non-preventive services that require a copayment.

Plans with higher monthly premiums typically carry lower deductibles. On the other hand, high deductible plans often come with lower monthly premiums. The deductible amount can change from year to year.

To whom do you pay your deductible?

You pay your deductible directly to the health care provider or medical facility. The deductible amount resets every year, at the beginning of the plan year.

If a service calls for coinsurance rather than a copayment, you’ll pay the full cost negotiated between your insurer and health care provider until you’ve reached your deductible. At that point, you pay only the coinsurance amount while your policy pays the rest.

Choosing the right deductible plan

The best plan for you depends on the level of service you expect to need. For instance, a high-deductible plan may be a suitable option for people who only expect to get preventive care and will not use prescription drugs during the year.

In the Marketplace, people who qualify for cost-sharing reductions (CSRs) can choose plans with low deductibles and out-of-pocket costs. Plans with easy pricing offer some benefits before you meet your deductible as well.

Deductibles vs. other medical costs

The deductible is just one factor to consider when choosing health insurance. It’s important to look at plan types, network types, coinsurance, copays, premiums, and out-of-pocket maximums to find what meets your needs and fits your budget.

Deductibles vs. premium

Your premium is the amount you pay each month to keep your health insurance policy in effect. Your deductible is not included in your premium. Premium payments do not count toward the deductible.

The premium is the price the insurance company charges for taking on the financial risk of your potential medical costs. You need to pay this every month, even if you don't use health care services in a particular month.

Deductibles vs. coinsurance

Coinsurance is the percentage you must pay for covered medical expenses after satisfying the deductible. Your plan pays any additional costs. Plans with higher premiums tend to have lower coinsurance. A common coinsurance scenario is 80/20, where the plan pays 80% of costs, and the insured pays 20%.

Deductibles vs. copay

A copayment (copay) is a fixed amount you pay for a covered medical service once you have met your deductible. People usually pay this to their healthcare provider at the time of service. Copays for doctor’s visits, specialist visits, and lab tests can vary within a plan.

Deductibles vs. out-of-pocket maximum

The out-of-pocket maximum is the most you will have to pay in a plan year for medical expenses in your plan’s network. This limit counts deductibles, coinsurance, and copays. Once the limit is met, your insurance pays for any remaining costs of covered benefits.

For 2023, the out-of-pocket limit for a Marketplace plan cannot exceed $9,100 for an individual and $18,200 for a family. This limit does not include:

Premiums;
Out-of-network services;
Costs beyond the allowed amount for a service;
Any amount spent on services your plan doesn’t cover.

High vs. low deductible

Understanding the difference between high and low deductibles can help you narrow your health insurance choices. High-deductible plans feature lower premiums, so they might work for someone who wants to pay less and does not expect to incur costly medical bills.

A High Deductible Health Plan (HDHP) is a policy that combines traditional coverage with a health savings account (HSA) or Health Reimbursement Arrangement (HRA). This is a tax-advantaged way to save for future healthcare costs and help protect against catastrophic medical bills.

On the other hand, paying higher premiums for lower deductibles may benefit those who expect to see large health costs forthcoming. While these people would pay more for their plan every month, their medical expenses would be lower when they need services.

Individual vs. family deductible

Health insurance plans can have either an individual or family deductible, or they can have both. The average single deductible for private-sector workers was $2,004 in 2021, according to the most recently available data from the Kaiser Family Foundation. The average family deductible was $3,868 that year.

Individual deductible

An individual deductible is the amount one person must meet before their plan covers their health care costs or coinsurance kicks in.

Family deductible

A family or aggregate deductible is the maximum amount a household must pay before the plan covers their health care costs or coinsurance kicks in for the entire family. A family plan has at least two covered family members in the plan.

Overall family deductible plan

In plans with an overall family deductible, the medical expenses for all household members are combined throughout the plan year and applied toward the family deductible. Once the deductible is reached, the plan will help cover additional healthcare costs.

Embedded deductible plan

Embedded deductible plans have an overall family deductible and individual deductibles for each family member. If any family member satisfies their individual deductible, their coinsurance kicks in, and any additional claims don’t apply to the family deductible.

If a combination of the family members’ deductibles meets the family deductible maximum, further claims are paid with coinsurance and applied to the individual and family out-of-pocket limits.

Final word

Health insurance deductibles often vary among and within plans, making them challenging to understand. A policy’s benefit summary should explain the amounts or percentages you’ll need to pay. A plan provider can also clarify what coverages are subject to deductible and what counts toward the deductible. The answers you find can help you choose a suitable plan for your situation.