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Deductible

In insurance policies, the deductible is a threshold amount (e.g. $1000) that insurance carriers require the insured to pay towards their covered medical expenses before the insurance carrier begins to pay for any expenses whatsoever.  

The deductible is typically reset on a yearly basis (on January 1st). Some contract-year deductibles exist, which reset on the renewal date of the health plan contract.

Insurance carriers have built this out-of-pocket element component in order to prevent reckless health care spending in the presence of insurance. In other words, deductibles allow carriers to limit their risk by discouraging insureds from seeking medical care for every small concern.

That being said, under the Affordable Care Act, preventive services are required to be covered by insurers with zero cost-sharing (deductibles, copay, and coinsurance). This provision is meant to encourage usage of expert-recommended preventive services by removing cost barriers to their access.

Why would someone prefer a high deductible plan over a low deductible plan? Typically, a high deductible plan has a low monthly premium payment, while a low deductible plan has a higher monthly premium. Healthy individuals who do not anticipate getting hurt might choose a high deductible plan in order to save money with a lower monthly premium. However, this leads to greater unpredictability of medical expenses, and the potential need to pay large sums out-of-pocket on the spot before insurance chips in. On the other hand, those who place a higher value on financial security and predictability of expenses may opt for a low-deductible plan with a higher monthly premium. Ultimately, individuals should consider how much they can afford to pay in monthly premiums, and how much risk they carry medically, when choosing a deductible/premium level that is right for them.

After the deductible is satisfied, the insurer and insured begin cost-sharing the insured’s medical bill through copays and coinsurance.

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