What's a Deductible?

Having insurance doesn't make health care free. Be aware of what you'll owe, and how to control your costs.

May 4, 2014 at 3:30PM

A tumble from a bike hurt me from head to toe.

Not literally, but that pain from the bruised knee I suffered definitely made its way upward once I took a gander at my medical bills.

That relatively inexpensive premium taken out of my paycheck for health coverage? Really can turn on a person when an actual medical service like, say, an X-ray, is needed. It's one that, quite frankly, should be framed and mounted on the wall as modern art, given the costs.

That's when I realized, in one of those lesser-known phases of adulthood, it was time I had more than a cursory understanding of the boxes I'd been checking for my health-care insurance. As health-care costs continue to rise, we can help ourselves out by better catering our health plans to the life we lead.

Let's focus on employer-provided health care to keep this discussion manageable. (Health-care humor.)

(More from Manilla.com: The Importance of Being Informed About Health Care)

A healthy list of terms
The key is to understand the basic terminology and how these items help to balance each other out.

The amount of money you spend on your health insurance plan, and therefore the amount taken out of your paycheck, is your premium. Service providers typically list this as a monthly amount, though individual paycheck deductions may vary. A co-payment, or co-pay, is the flat fee requested at the time of a medical service. These fees, such as that $5 bill passed over the counter when you check in for a doctor visit, are determined upfront and often are printed on your health insurance card. In addition to helping curb costs, a co-pay is used to prevent people from seeking care for every trivial condition.

A rather high co-pay of, say, $25 can add up quickly for folks with a chronic condition, so factor this in when choosing a plan.

Here's where the fun comes in with deductibles. This is a fixed amount of money you, the insured, must pay before most, if not all, of your health insurance benefits can be utilized. A deductible amount is calculated yearly, so you have to meet a new deductible each year of your policy. Medical services fall into your lap financially until you meet that deductible amount, at which point the health insurance kicks in and you're only responsible for monthly premiums.

(More from Manilla.com: How to Keep Health-Care Costs Down)

A plan with a high deductible should be balanced by a low monthly premium, and vice versa. If you're relatively healthy, a fiscally smart way to go is a plan with a high deductible and low monthly premiums. Good health will mean little money spent to preserve it. However, if an emergency were to occur, you can expect an initial hit to your pocketbook until your insurance can cover many of the necessary services, including hospital stays.

As a completely random example, let's say you fell off a bike and when your knee didn't heal properly, you visited your physician, who suggested X-rays to check for breaks. A lifetime of the bare-minimum doctor visits set you up to rejoice when results of the X-ray confirmed a simple contusion (yes, OK, a bruise, but "contusion" helps rationalize the visit). Then the bills arrive and you're confronted with several hundred dollars owed between the office visit and X-rays. It's right about then that the low monthly fees and $1,500 deductible feel out of sync.

However, with a bit of distance from the wallet raid and realization that the scenario was an exception rather than the norm, the plan still makes sense. But now at least I understand things better.

(More from Manilla.com: A Guide to Simplifying Health-Care Jargon)

What's what with regard to managed care health plans:

  • An HMO, or Health Maintenance Organization, is a type of plan in which coverage is limited to doctors who work for or contract with the HMO. Your care is overseen by a primary care physician, who refers you to specialists as needed.
  • A PPO, or Preferred Provider Network, is a plan that allows subscribers to use doctors, hospitals, and providers outside a network, for a fee.
  • A High-Deductible Health Care Plan typically has a low monthly premium, designed to offer minimal day-to-day coverage, but protects you in the event of a medical emergency.
  • A Point of Service Plan rolls together various aspects of PPOs and HMOs. As with a PPO, PoS typically requires users to choose a primary care physician, who makes referrals either inside or outside of the network.
  • A Fee-for-Service Plan reimburses you for a large percentage of what you pay out of pocket. You pay for the service, and your insurance company pays you back.

Things to consider when choosing your health plan:

  • How much can you afford to pay monthly for health care?
  • Who will need to be covered under your plan?
  • How often do you, your spouse, and your children make doctor visits?
  • Do you or your dependents have medical conditions requiring special care?
  • What would happen in the event of an accident or surgery?
  • What is the maximum deductible you could afford to pay?

Jim Staats is a technical support analyst at Manilla.com, the leading, free, and secure service that helps consumers simplify and organize all of their bills and household accounts in one place online or via the four-star-plus customer-rated mobile apps. He has a bachelor's degree in industrial technology from California Polytechnic State University at San Luis Obispo. Wedged between stints supporting products at firms including Intuit and Sybase, Jim worked as a journalist reporting on real estate, business, technology, and other issues for print and online publications.

Take advantage of this little-known tax "loophole"
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information