Getting health insurance isn't just a matter of paying your monthly premium and calling it a day. There are other out-of-pocket costs that come with having health insurance, including your deductible.
A deductible is the amount you'll spend on medical services before your insurance plan begins to pay for your care. Once you meet your deductible, your insurance company will start to cover your services, at which point you'll still be responsible for whatever copayments come with your plan. When choosing health insurance, you'll need to take the cost of its premiums and deductibles into account, because both will dictate how much you ultimately wind up spending.
How health insurance deductibles work
Once you sign up for a health insurance plan, you're required to pay a monthly fee, or premium, for your coverage. But that fee doesn't cover your services in their entirety. In fact, most health plans include a deductible that must be met before services are covered by insurers.
Imagine you have a health insurance plan with a $2,000 deductible. What this means is that you'll pay for your first $2,000 in medical costs in full. Once you meet that deductible by spending $2,000 on medical care, your insurance company will step in and start to pay for your services, at which point you may still need to contribute a portion via a copayment. But once you fulfill your deductible, you'll no longer be required to pay for your medical services in their entirety.
Choosing the right deductible
It tends to be the case that insurance plans with lower monthly premiums come with higher deductibles, while plans with higher premiums come with lower deductibles. When deciding which type of insurance plan to purchase, you'll need to think about not just how much you tend to spend, but how much risk you're willing to take on -- because if your medical bills end up coming in higher than expected, you could be on the hook for a hefty deductible.
Here's an example. Say you're looking at two different plans. The first has a $200 monthly premium with a $12,000 deductible, while the second has a $500 monthly premium with a $1,000 deductible. If your health is generally good, you may be inclined to go with the first option. This way, if you only need, say, a single $400 doctor visit during the year, you'll spend just $2,400 on premiums plus another $400 toward your deductible for a total of $2,800.
But what happens if you get injured and require a $12,000 medical procedure? Suddenly, you're far better off with the second plan, because while you will spend $6,000 over the course of the year in premium costs, you'll only need to cover a $1,000 deductible, bringing your total to $7,000. In the first scenario, you'd be on the hook for your entire $12,000 deductible plus your premium costs.
That said, keep in mind that certain preventative services may be covered by your health plan even before you meet your deductible. It's important to review the specifics of each plan you're looking at before making a decision, and to choose the option that offers the most coverage with the least amount of risk and cost.
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