Is a Health Insurance Deductible Prorated for Mid-Year Enrollees?

91495796-John-Lund-GettyImages.jpg
Reaching your deductible is an uphill battle. Doing it when you enroll mid-year is even harder. Image © John Lund/Getty Images

It may seem unfair to have to pay your entire deductible if you don’t sign up for health insurance until the middle the year. After all, you’re only getting health insurance for half of the year if you enroll mid-year; shouldn’t the deductible be prorated to half of the annual deductible?

Since deductibles are so expensive, requiring payment of the full annual deductible if you enroll after part of the policy-year is over makes it less likely you'll reach your deductible that year.

In this case, you'll be less likely to reap the benefit of having your health insurer pick up part of the tab for your medical expenses.

Unfortunately, an annual health insurance deductible isn’t prorated for partial-year enrollees no matter how few months are left in the plan-year when you sign up for health insurance. The out-of-pocket maximum isn't prorated, either.

Examples

Calendar-Year Policy

You’re uninsured for the months of January through June. You get married during the month of June making you eligible for a special enrollment period. You sign up for health insurance coverage on your state’s Affordable Care Act health insurance exchange starting on July 1 with an annual deductible of $2,000.

All Obamacare plans have a plan-year that runs from January 1 through December 31. If you use your health insurance between July 1 and December 31 for anything other than preventive health care, your health insurer won’t begin to pay part of your health care bills until you’ve paid the entire $2,000 deductible.

Even though you only have health insurance coverage for half of the year, you still have to pay the entire deductible before your insurer will start picking up the tab.

Non-Calendar-Year Policy

You’re hired for a new job in early February. Your new employer will provide health insurance coverage as part of your employee benefits package starting March 1.

The employer has open enrollment every August for a plan-year that runs from October 1 through September 30 of each year.

Since you’re a new employee with an initial enrollment in the middle of the plan-year, you’ll only have seven months of coverage before a new plan-year begins in October and the amount you’ve paid toward your annual deductible resets back to zero. Despite your shortened coverage year, you’re held to the same deductible amount as the other employees who selected that plan during open enrollment last August.

Health Insurance Deductibles Aren't Transferable From Plan to Plan

If you switch from one health plan to another during the policy-year, the amount you had already paid toward your annual deductible in the health plan you had early in the year is not credited toward the annual deductible in the health plan you have later in the year. When you enroll in the new health plan, the amount you’ve paid toward your new deductible starts at zero even if you had already paid your entire annual deductible in the other plan.

Example

You had health insurance coverage with an Obamacare plan from January 1 through July 31. During that time, you paid $1,300 toward your $2,000 health insurance deductible. You drop your Obamacare plan when you get job-based health insurance coverage beginning August 1. This new job-based coverage has an annual deductible of $1,000.

The $1,300 you already paid toward your Obamacare coverage does not count toward your new job-based health insurance deductible. You must start from scratch, paying the entire $1,000 job-based health insurance plan’s deductible before that insurer begins to pick up the tab for your medical bills.

If I Have to Pay the Annual Deductible Twice in One Year, Can I Recoup the Money?

There’s no way to recoup all of the additional money you spent toward your health insurance deductible when you switch plans mid-year after paying the first plan’s deductible. However, cost-sharing expenses like deductibles, copays, and coinsurance can sometimes be used as a tax deduction resulting in lower income taxes. Learn more about this in “How To Write Off Medical Expenses as a Tax Deduction.”

Continue Reading