Posted September 1, 2013 | Filed under topic Health Insurance Information
The deductible is a huge word in health insurance policy negotiations, but lots of consumers still aren’t sure what it means. Recent surveys showed how few of the average American citizens who have purchased insurance policies understand common terms like ‘deductible,’ as well as others associated with choosing a good health insurance plan. The deductible is a specifically important factor because it changes policy premiums so much.
What Is a Deductible?
At its most basic core, the deductible is a concrete amount of money that a health insurance member must pay out-of-pocket before the insurance starts to ‘kick in’ toward care. Deductibles are often applied per year, but other kinds of deductible applications can also be parts of some policies.
A simple example is this: if an insured person has a $750 deductible per year, he or she is responsible for paying the first $750 in medical bills, before a health insurance company will start to pay on claims. That doesn’t mean that the initial bills are not sent to the health insurance company. Even bills that will be paid out of pocket according to the deductible will be reduced if the health insurance company adjusts costs due to its contractual agreements with providers.
After the deductible is met, the insurance company will pay all or a portion of remaining costs, depending on the individual policy. The remaining out-of-pocket amounts will be called “co-insurance.”
Factoring Deductibles into Health Insurance Shopping
Even many consumers who understand a deductible may be tempted to choose them in risky ways. Because deductibles make premiums go down, the tendency is to select an extremely high deductible to avoid up front premium costs. This can be an option for a fairly healthy person, but health insurance shoppers need to understand what they’re getting into. If they incur any serious health care costs, they will be on the hook for the entire deductible, and if that’s many thousands of dollars, even those premiums that they pay may not have worked out to their advantage.
In general, the key is to have enough cash on hand to pay the deductible during any given year. The underlying strategy for deductible is holding savings. If the family has that money stored away, health insurance buyers can be confident that they won’t get in a bind over future medical bills, or at least, that they will be able to handle the initial charges up to the deductible amount.
Having a better understanding of terms like ‘deductible’ allows shoppers to negotiate better with their health insurance companies. This is perhaps most important for those who go out and buy individual insurance on the open market, but it may also be a big issue for employees who get to choose from different health insurance options offered by their employer.