What's a Deductible?

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.

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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.