What Does It Mean If Care Is "Excluded From the Deductible"?

How your health plan covers various care depends on the plan design

What does it mean when healthcare services aren't subject to the deductible?
If your office visits are "not subject to the deductible" it means your benefits kick in sooner than they would otherwise. Caiaimage/Sam Edwards/Creative RF/Getty Images

What does it mean when healthcare is "excluded from the deductible" or "not subject to the deductible"? That's a question some readers have had in response to a recent Commonwealth Fund analysis of health plans sold in states that use Healthcare.gov.

It's easy to see how this could be confusing, since "excluded" is also a word used to describe services that aren't covered at all by a health plan (say for example, infertility treatment in states that don't require it).

"Not subject to the deductible" = you pay less

But when a service is not subject to the deductible, it means you've actually got better coverage for that service. The alternative is having the service be subject to the deductible, which means you'd pay full price unless you'd already met your deductible for the year.

To clarify, "full price" means after the network-negotiated discount is applied. So if a specialist's regular charge is $250, but your health insurance company has negotiated a rate of $150, "full price" would mean you'd pay $150.

To make sense of all this, it's important to understand the terminology used to describe health plans. Copay is not the same thing as coinsurance. Deductible is not the same thing as out-of-pocket maximum (which can be as high as $6,850 for a single individual in 2016, and as high as $7,150 in 2017). Premiums aren't counted in your out-of-pocket costs (although you should include them when you're doing the math to compare plans).

It's also important to understand the Affordable Care Act's essential health benefits, which are covered on all individual and small group health plans with effective dates of January 2014 or later. If you've got coverage under a small group or individual plan that isn't grandfathered or grandmothered, a treatment that falls under the umbrella of one of the essential health benefits is covered by your plan.

But "covered" just means that your health plan's benefits apply. How those benefits work depends on your plan's design:

  • You might not have to pay anything at all (this will be the case for preventive care).
  • Or you might have to pay a copay (a flat fee that's pre-set by your plan - maybe $25 or $50 or $100, depending on the treatment in question).
  • Or you might have to pay full price for the treatment (if you haven't met your deductible yet).
  • Or you might have to pay a percentage of the cost (coinsurance).

All of those options count as "covered." Some health plans are creative with how they design their coverage (eg, a plan with no deductible, but a $5,000 copay for hospitalization). But regardless of how your plan is designed, the total amount you pay for covered services throughout the year will count towards your out-of-pocket maximum. It can be any combination of copays, deductible, and coinsurance, but once you've met the annual out-of-pocket maximum, your health plan will pay 100% of any covered services for the remainder of the year (note that if you switch to a different plan mid-year, your out-of-pocket maximum starts over with that plan).

Copays = lower cost at the time of service

If your health plan has a variety of services that are covered but not subject to the deductible, it means you'll pay less for that care than you would if the service were subject to the deductible. If it were subject to the deductible, you'd pay full price for the service, assuming you hadn't already met your deductible (if you had already met your deductible, you'd pay either a percentage of the cost - coinsurance - or nothing at all, if you'd also already met your out-of-pocket maximum).

But if the service isn't subject to the deductible, you'll typically be responsible for a pre-determined copay instead of the full price. Note that some services - like preventive care, and on some plans, generic drugs - aren't subject to the deductible or to a copay, which means you don't have to pay anything for that care (all non-grandfathered plans have to cover preventive care with no cost-sharing, which means the patient doesn't pay anything for that care - it's covered by the premiums that are paid to purchase the plan).

An example is worth 1,000 words

So let's say your health plan has $35 copays to see a primary care physician, but counts specialist visits towards the deductible. You've got a $3,000 deductible and a $4,000 out-of-pocket maximum. And the specialist's network-negotiated rate with your health insurance company is $165.

Let's say you have three visits to your PCP during the year, and two visits to a specialist. Your total cost for the PCP visits is $105, and your total cost for the specialist visits comes to $330, since you pay full price.

At this point, you've paid $330 towards your deductible, and you've paid $435 towards your out-of-pocket maximum. ($330 plus $105).

Now let's say you're in an accident before the end of the year, and end up in the hospital for a week. Inpatient charges apply to the deductible, and your plan pays 80% after you've paid the deductible, until you've met your out-of-pocket maximum.

For the hospital stay, you'd have to pay $2,670 in deductible charges ($3,000 minus the $330 that you'd already paid for specialist visits). Then you'd have to pay 20% of the remaining charges until the total amount you'd paid for the year had reached $4,000. Since you'd paid those three PCP copays totaling $105, you'd only have to pay $895 in coinsurance charges for the hospital stay to get to the out-of-pocket maximum.

Here's how the math would look when it was all said and done: 

  • $330 + $2,670 = $3,000 deductible met
  • $105 (copays) + $895 (coinsurance) = another $1,000 in charges for the year
  • $3,000 + $1,000 (deductible plus all other out-of-pocket expenses) = $4,000
  • $4,000 is the out-of-pocket maximum on your plan, which means any other covered services for the rest of the year will be covered in full by your health insurance plan, assuming you stay with the same plan for the rest of the year.

If your health plan had subjected PCP visits to the deductible, you'd have paid full price for those as well (let's say $115 each). In that case, you'd have been up to $675 in charges applicable to the deductible prior to your hospital stay ($345 for PCP visits, plus $330 for specialist visits). You'd still have ended up with the same $4,000 in out-of-pocket costs after the hospital stay.

But if the accident hadn't happened and you hadn't ended up in the hospital, your total costs for the year would have been higher on the plan with PCP visits subject to the deductible ($675, instead of $435). If you end up meeting your out-of-pocket maximum for the year, it's not going to matter one way or the other. But if you don't end up meeting your out-of-pocket maximum, you'll usually pay less when you plan has services that aren't subject to the deductible.

Summary

Don't panic when you find out that services aren't subject to the deductible. As long as they're covered by your plan, this just means that you'll pay less for those services than you would if they were subject to the deductible.

If you've got a chronic, serious illness that requires extensive medical treatment, there's a good chance that you'll meet your out-of-pocket maximum for the year regardless of the plan design, and you'll likely find that a plan with a lower out-of-pocket maximum will be beneficial to you, despite the fact that it will come with a higher premium.

But if you're healthy and don't end up meeting your plans out-of-pocket maximum - or even the deductible - having benefits that aren't subject to the deductible just means that your health insurance company will start paying for a portion of your care sooner than they would if all the services were subject to the deductible (because that would mean you'd have to pay full price until the deductible was met - which might not happen at all in a given year).

That said, the more services that are excluded from the deductible, the higher the premiums tend to be.

 

 

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