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How to Use and Manage Your Health Insurance Deductible

While most people have health insurance, many people have a very limited knowledge about how their health insurance works, particularly the part that involves paying money out-of-pocket. Until just recently I really had no idea what my health insurance deductible did, or when I needed to pay it. When I went to the doctor, I would pay $25 for my visit. Was this my deductible? Also, what is this 90/10 coinsurance thing on my policy? And how can I tell if I have low or high deductible health insurance?

Definition of Health Insurance Deductible

Very simply put, your health insurance deductible is the amount you have to pay before your health insurance company begins to cover any of the costs. This can be confusing, because the deductible isn't the only time you pony up some cash when you are dealing with health-related doctor visits. Many people also have copays and coinsurance on their policies. Let's take a quick look at the definitions of these two words so we can better understand how everything fits together.

Your copayment is the amount you are required to pay to receive routine health care - typically in the form of doctor visits. A few years ago I started having really bad stomach aches, so I scheduled a visit to the doctor. When I showed up, I had to pay $25 to see the doctor, and the rest of the bill was covered by my insurance. This is your copay, not your deductible.

Coinsurance is the portion of a health insurance claim you pay after your deductible is paid. In most health insurance policies today, coinsurance is expressed as a percentage of a certain amount of money. For example, I used to have a policy that had 80/20 coinsurance on the first $5,000 in health insurance costs after my deductible was paid. This meant that if I needed hospitalization, I would first pay my deductible, and then pay 20% of the next $5,000, or $1,000.

What is a Health Insurance Deductible?

So, we now know that our health insurance deductible is paid before most health insurance benefits are paid, and we know it's not the same thing as a copay and coinsurance. But what is a health insurance deductible and when is it used? I've created a few scenarios that do a pretty good job of showing how your health insurance deductible can impact you.

Scenario 1: Me vs. the Mountain Bike

I love mountain biking, and I go as often as I can. Sometimes when I am racing down a mountain, I ride a little too aggressively. In this fictitious scenario, one minute I'm cruising, the next I'm lying on the trail after flipping over the handle bars. Ouch! This little excursion lands me in the hospital with a $15,000 hospital bill.

Let's suppose I have a health insurance policy that has a copay of $25, a deductible of $3,000, and coinsurance of 90/10 on the first $5,000 after the deductible. My copay is for routine doctor visits, which this clearly isn't, so it has no effect. My $3,000 deductible is the first thing that needs to be paid. After I pay my deductible, there is still $12,000 in medical bills. My coinsurance is 90/10 for the next $5,000 (which means I pay 10% of the next $5,000). Therefore I will pay another $500, so my out-of-pocket bill is $3,500. After that, under this plan I have exhausted my deductible and my coinsurance, so my health insurance will pay for the rest of the costs.

Scenario 2: Me vs. the Common Cold

I hate getting sick. Despite this aversion, it still seems to find me once a year. I typically try to resist going to the doctor at all costs, but when I can't speak due to a sore throat, my body aches, and I feel like I'm going to pass out, sometimes I break down and go.

Let's suppose I have the same health insurance coverage as in the mountain biking example. Will I use my deductible in this scenario? Nope. My coinsurance? Nope. The only thing I'm responsible for is to pay my $25 copay. As long as I don't require any major medical attention, I should be able to get out with no extra costs.

Hopefully these two scenarios have helped you answer the 'what is a health insurance deductible' question.

High Deductible Health Insurance

Hopefully through my examples and the definitions your understanding of the health insurance deductible is clearer. The hope is that most of the time, people won't need to use their health insurance deductible. To mitigate the risk of having to fork out thousands of dollars if they do have a health issue, however, many people try (if at all possible) to stay away from high deductible health insurance plans to keep more money in their pockets over the long run.

High deductible health insurance isn't always a bad thing; if you are the type of person who rarely uses your insurance, you stand to save thousands of dollars by having high deductible health insurance! If, on the other hand, you and your family often find yourselves using up your current health insurance deductibles, then you probably should probably pick a policy with a lower deductible.

Now that we've explained the basics of the home insurance deductible, you're ready to tackle this health insurance companies with confidence. Good luck!

Last modified: Mon Jan 27 10:57:16 MST 2014