Health Insurance Deductible: What It Is and How It Works

You don't have to remember high school algebra to understand your deductible,but you do need to know when you owe it and when you don't. Image © Cevdet Gokhan Palas/Vetta collection/Getty Images

If your health insurance comes with one or more deductibles, you'll end up paying a few hundred dollars to several thousand dollars. Understanding what this deductible is, how it works, when you have to pay it, and when you don’t have to pay it is part of using your health insurance wisely.

What Is a Health Insurance Deductible?

Your deductible is a fixed amount you have to pay each year toward the cost of your health care bills before your health insurance coverage kicks in fully and begins to pay.

How a Deductible Works—an Example

 Let’s say your health insurance requires a $1000 annual deductible.

  1. In January, you get bronchitis.
    • Total bill = $200. (Doctor, prescription.)
    • You pay $200.
    • Your health insurance pays $0.
    • $200 is credited toward your deductible.
    • $800 remaining before deductible is met.
  2. In April, you find a lump in your breast. The lump turns out to be benign; you’re healthy.
    • Total bill = $4,000. (Doctors, tests, biopsy.)
    • You pay $800. (Now you’ve met your $1000 deductible.)
    • You pay any copayments or coinsurance your health plan requires.
    • Your health insurance pays the rest of the bill.
  3. In September, you break your arm.
    • Total bill = $2,500. (Emergency room, doctor, X-ray, cast.)
    • You pay copayments and coinsurance, but no deductible.
    • Health insurance pays the entire bill minus your copayment and coinsurance.
  4. Next January, you’ll start the process all over again.

In most health plans, once you’ve paid the deductible for the year, you’re done with deductible payments until next year.

Each year, the health plan sets a new deductible. Sometimes it’s the same amount as the year before; sometimes it goes up.

Different Types of Deductible

Some health plans have more than one type of deductible.

  • Annual Deductible

This is the most common type of deductible and is what’s described in the example above.

  • Per-Episode Deductible

Unlike an annual deductible, a per-episode deductible happens each time you get a particular type of service. For example, your health insurance may require a $1,000 deductible each time you’re hospitalized. Per-episode deductibles are less common than annual deductibles.

  • Out-Of-Network Deductible

Some health plans, PPOs in particular, have one annual deductible for care you get from in-network doctors and a higher annual deductible for care you get from out-of-network providers.

For example, if your health plan has a $1,000 in-network annual deductible and a $2,000 out-of-network deductible, your health plan would start paying for your in-network health care after you’ve paid $1,000 toward your in-network bills. If you then started seeing an out-of-network specialist, you’d have to pay $2,000 toward that out-of-network care before your health plan would start paying anything for your out-of-network care. The $1,000 you’ve already paid as an in-network deductible doesn’t count toward your out-of-network deductible.

In some health plans, any amount you pay toward your out-of-network deductible also counts toward your in-network deductible. In other health plans, the two deductibles are totally separate.

  • Family Deductible

If your health insurance policy covers your entire family, it likely comes with a family deductible. Family deductibles work differently than individual deductibles and come in different types such as an embedded deductible and an aggregate deductible. Learn more in "How Your Family Deductible Works."

When Don’t You Pay the Deductible?

In the United States, thanks to the Affordable Care Act, you don’t have to pay a deductible when you get preventive care services from an in-network doctor.  Things like your yearly screening mammogram, the colonoscopy you get when you turn 50 years old, and your yearly flu shot aren’t subject to the deductible. Your health plan will pay for those preventive services even if you haven’t met your deductible yet.

Some health plans, particularly some HMOs, don't require a deductible at all. However, these plans usually charge copays for things like doctor visits, prescriptions, emergency room visits, and hospitalizations.

What Doesn’t Count Toward the Deductible?

Health care expenses that aren’t a covered benefit of your health plan don’t count toward your health insurance deductible even though you’ve paid for them. For example, if your health insurance doesn’t cover orthotic shoe inserts, then the $400 you paid for a pair of orthotics prescribed by your podiatrist doesn’t count toward your deductible.

If your health insurance requires a per-episode deductible as well as an annual deductible, money you pay toward the per-episode deductible might not count toward your annual deductible.

If you have separate deductibles for in-network care and out-of-network care, the amount you’ve already paid toward your in-network deductible doesn’t count toward your out-of-network deductible. Depending on your health plan’s rules, the amount you’ve paid toward your out-of-network deductible might not count toward your in-network deductible, either.

In many health plans, copayments don't count toward your annual deductible. Learn more in "Do Copayments Count Toward Your Health Insurance Deductible?"

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