What Is a Deductible in Health Insurance and How Does It Work?
What is a deductible in health insurance and how does it work? This question and the answer for it are essential for everyone who wishes to buy a health insurance policy. Health insurance transaction between an insurance company and its potential clients is not a strictly standardized deal, despite the fact that many people believe so. In fact, it is a contract that involves intense negotiation about various aspects of the policy, one of which is deductible.
What Is a Deductible in Health Insurance?
In health insurance, a deductible is basically an agreed portion of medical expenses that an insured party must pay before the insurance company can provide compensation to cover the rest of the expenses up to the limit outlined in the policy. With deductible, medical expenses are paid with the insured party’s own money first before the insurer steps in to cover the difference. A deductible is not exclusive to health insurance as it is also found in other types of insurance.
The exact amount of deductible is defined by the negotiation between the insurer and the insured party when the latter purchases a policy. This negotiation is expected to be beneficial for both the insurer and the client. Therefore, the agreement concerning the amount of deductible is always tied to that concerning the premium cost. Generally speaking, the higher the deductible is, the lower the monthly premium cost the client has to pay. In the same manner, lower deductible will incur only marginal reduction of premium cost.
How Does Deductible Benefit both the Insurer and the Insured Party?
Deductible is necessary in a health insurance negotiation as it gives leverage to the insurance company to offer competitive policies while maintaining profitable business. An insurance company will specify premium cost by taking into account the risk of payout that the company has to make for every claim. Clients who are likely to make a claim thus have to pay higher premium cost to make sure that the company can gain profit.
With deductible, the premium cost of a health insurance policy can be reduced. If clients are eager to take higher deductible for their insurance policy, the premium cost of their insurance can be significantly reduced. The benefit of this premium cost reduction is clear for the clients, but it is actually also clear for the company. Clients who take high deductible will try not to incur enough health care expenses to exceed the deductible amount. Since claim is less likely to be made, the company can benefit from the lower risk of payout.
People with good health will prefer to take high deductible or catastrophic plan because they wish to benefit from the significant premium cost reduction that the deductible offers. They often do not worry about the high deductible that they have to bear as their good health can be considered an assurance that they will least likely make frequent hospital visits and have to deal with high health care expenses. Of course they will be in a problematic situation if some unexpected accident that causes them to suffer serious health problem occurs.
How Does Deductible Work?
When clients experience an accident that requires them to be hospitalized or to pay medical expenses, they will try to make a claim. In doing so, the insurance company will require them to take from their own pocket money amounting to the amount of the agreed deductible to pay for a portion of the expenses. The company will then cover the rest of the expenses. For example, if you are suffering from a certain illness that results in $ 2,000 worth of medical care and you have taken a deductible of $500, you only need to pay $500 to the hospital. The insurance company will then step in and cover the remaining $1,500. However, it is important to remember that the company will provide full coverage minus the deductible only if the coverage is still within the limit outlined in the policy.
Some Important Facts about Deductible in Health Insurance
The following facts are considered important if you want to take deductible when purchasing health insurance plan.
Not all health insurance plans include deductible.
Some health insurance plans are no-deductible, meaning that they don’t require you to pay out-of-pocket costs when receiving healthcare services. Employer-based insurance plans are mostly no-deductible, but some insurance plans that you can buy on your own may also be no-deductible. Although no-deductible plan provides full coverage to your medical expenses, their premium cost is mostly expensive.
Even if you have to pay a portion of your medical expenses as well as monthly premium, having a deductible plan is still considered more cost-effective than not having any insurance plan at all.
This is because your insurer will try to negotiate with the healthcare service provider so that you can get discount. If you are not protected by any health insurance plan, the medical expense that you have to pay is often twice or three times more expensive than it is if you are protected by a health insurance plan.
Deductible in health insurance can be different from that in other types of insurance.
If you take deductible plan in your homeowner or auto insurance policy, you will not receive the necessary service until you pay the deductible. In health insurance, you can still get the service even if you haven’t met your deductible.
Preventive care is covered fully by your insurance.
You have to pay out-of-pocket costs only if you undergo curative medical care. Any preventive cares, such as immunization and screenings, are fully covered by your insurance plan. You don’t have to pay for those cares using your own money even if their cost is still within your deductible limit.
Different insurers, however, have different policies regarding their deductible plan. It is thus important for you to consult your insurer to learn more about all details concerning the insurer’s deductible plan and to get more comprehensive answer for the question what is a deductible in health insurance and how does it work.