Deductibles and Premiums

What is a Deductible and how does it affect my premium?

Anytime you can lower your expenses is a good thing. An easy and simple way to lower your health insurance costs is by choosing a plan with the highest deductible you can afford to pay in a year. What is a deductible? It’s a way for you to share a portion of your medical services costs with your insurance company before your coverage kicks in every year. The part you pay is called the deductible.

A Quick Look at How Deductibles Work

  • In most cases, the higher your deductible, the lower your premium
  • A deductible helps lower your premium
  • Some plans have different deductible levels

Deciding on a Deductible

How do you decide what deductible level you should choose? The three most important factors are:

  1. Your financial ability to pay the deductible in any given year
  2. Your overall health and estimated medical expenses
  3. Your comfort level with paying the amount

Here’s an example:

Let’s say Trish has a plan with a $500 deductible. She falls from a ladder while changing a bulb and breaks her arm. She visits the emergency room (ER). After the exams, X-rays and casting, the total cost is $2,100. Trish’s plan covers 80 percent of ER expenses, so she has to cover 20 percent, which is her coinsurance.

 The total cost of ER visit  $2,100
 Trish is responsible for her deductible first  $500
 That leaves a remaining balance  $1,600
 Her plan pays 80 percent of that balance  $1,280
 She is responsible for 20 percent  $320
 Trish's total cost  $820

Although it cost her $820, the good news is that Trish has met her deductible. That means that 80 percent of other covered medical expenses will be paid for by her insurance company for the rest of the year, except for copays.

Trish could opt for a health insurance plan with a higher deductible – say $2,500. It’s likely that Trish would pay a lower premium per month to her health insurance company than she would with the example above. She also would still have $400 left to pay toward her deductible before her insurance started to cover the costs. Then, with this type of plan, any future medical expenses Trish would have in the same calendar year would likely be covered at 100 percent by the insurance company.