Meeting your deductible: What to know
A deductible represents the amount you must pay before your insurance begins to pay for some or all of your healthcare costs.
Many healthcare plans have several deductibles in place, each for different parts of your insurance coverage. For example, you may have a higher deductible for inpatient care but a lower deductible for outpatient consultations.
Sometimes, deductibles can seem like a hidden cost, so it can help you to know how insurance plans work, the common terminology insurers use, and the different ways you can manage an insurance plan.
How do you meet your deductible?
You’ll usually have to pay for eligible medical expenses out of pocket to meet your deductible. The term “out of pocket” means paying the full cost for a service without insurance coverage.
According to the Kaiser Family Foundation, the average annual deductible in 2023 was around $2,000.
Even under one plan, deductible amounts can differ for various aspects of care. For example, prescription medication, consultations, and inpatient hospital stays may all have separate deductibles.
Once you have paid your doctor’s office, clinic, pharmacy, or hospital out of pocket, it is important to get an itemized copy of the bill and submit this as a claim to your insurer.
This way, the insurer will process the claim and deduct all eligible expenses from your deductible.
Depending on your plan type, meeting your deductible may not take very long, or it may take some time. It is important to check your plan documents to avoid unwanted and costly surprises.
Checking your remaining deductible
When you have health insurance, you will have plenty of plan documents to read. But for tracking costs, the most important one is an explanation of benefits (EOB).
You can usually view these documents online, and the EOB is a great place to track your deductible.
It will typically show you what the total cost was for each medical service included within claims, a cost breakdown of what the insurer covered, and what you paid or are due to pay. On that document, you should also find a year-to-date amount that has been applied toward your deductible so far.
It is important to note that an EOB is not a bill. It is a statement that details your medical costs and payments.
Choosing an insurance plan
When you look for health insurance, you will undoubtedly look at the monthly premium costs. Usually, if the monthly premium is lower, the deductible is higher.
When looking for a new plan, some search functions may offer you the chance to adjust the deductible amount, allowing you to select the amount you feel is right for your needs. For example, lower premiums and a higher deductible could work well for you if you do not anticipate many medical expenses.
However, if you know that you will have upcoming medical expenses, choosing a higher monthly premium and lower or no deductible may make managing your healthcare costs more effective.
If you don’t select an insurance plan yourself — for example, if you have an insurance plan through your employer — you may have to thoroughly check your coverage documents to ensure you are familiar with any deductible rules.
Understanding an out-of-pocket maximum
Understanding your insurance plan terminology can help you build a more rounded picture of your healthcare costs.
Let’s start with the overarching out-of-pocket maximum. An out-of-pocket maximum combines all payments you make toward eligible medical expenses, like copayments, coinsurance, and deductibles. They are usually high amounts, but once you have contributed enough to meet the out-of-pocket maximum, an insurer will fully cover eligible costs.
Coinsurance and out-of-pocket maximums
If you have a coinsurance, you will pay a percentage of a healthcare cost. For example, if you visit a family doctor and the consultation costs $100, a plan may ask that you pay 10% of the consultation fee.
This means you will pay $10, and the plan will cover the rest. The $10 will be deducted from the out-of-pocket maximum.
Copayments and out-of-pocket maximums
If you have a copayment, you will pay a fixed amount toward your healthcare cost. Using the same example of a family doctor consultation costing $100, your copayment might be $50. So, in this example, you’ll pay that $50 and the plan will cover the rest.
The $50 is then deducted from the out-of-pocket maximum.
Deductibles and out-of-pocket maximums
If you have a deductible of $1,000 for outpatient consultations, you will pay the full $100 family doctor consultation fee in this example. You will keep paying for your consultations until you reach $1,000. At this point, your outpatient consultation deductible will be met, and the plan will cover costs moving forward.
The $1,000 you have paid will also count toward your out-of-pocket maximum.
High deductible health plans (HDHPs)
An HDHP is a plan that specifically has a higher deductible than most other insurance plans. These plans work alongside health savings accounts (HSAs), which you can use for eligible medical expenses on a pretax basis.
You can use the money from an HSA to cover deductibles, copayments, and coinsurance.
A flexible spending account (FSA) and a health reimbursement arrangement (HRA) work in a similar way, but an employer will offer these options.
Learn more about the different types of health savings accounts.
You can also use health savings accounts alongside prescription discount coupons, cards, and apps.
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Meeting your deductible means paying out of pocket for eligible medical expenses.
If you do not anticipate many healthcare costs in the coming months, a higher deductible plan with lower monthly premiums may better suit your needs.
However, if you know that you will have upcoming medical costs, choosing higher monthly premiums and a lower deductible may help you effectively budget.
Download the free Optum Perks Discount Card to save up to 80% on some prescription medications.
- 2023 employer health benefits survey. (2023). https://www.kff.org/report-section/ehbs-2023-summary-of-findings/
- High deductible health plan (HDHP). (n.d.). https://www.healthcare.gov/glossary/high-deductible-health-plan/
- How to read an explanation of benefits. (n.d.). https://www.cms.gov/medical-bill-rights/help/guides/explanation-of-benefits