Most health insurance plans available today don’t begin to cover your costs until you’ve contributed a set amount toward your own healthcare expenses. The predetermined amount that you must pay out-of-pocket each calendar year before your insurance plan contributes toward your expenses is known as your deductible.1
After you’ve met your deductible, your insurance company contributes to healthcare costs but you’ll still be responsible for a portion of the fee in the form of coinsurance or copayment. The amount you’ll pay for doctor appointments, prescription medication, tests, and more will be dramatically lower once you’ve met your deductible.2
The dollar amount of a deductible varies by health insurance plan. In general, plans with lower deductibles have higher monthly premiums, while plans with higher deductibles have lower premiums. Depending on your healthcare needs, you may seek a plan with a higher or lower deductible. If you have a chronic health condition and visit doctors frequently, you may want a lower deductible so you don’t have to pay for several appointments before your insurance kicks in. If you’re generally healthy and don’t visit doctors often, you may prefer a higher deductible because of the lower premium.3
What You Need to Know:
To figure out how much you’ll spend on health insurance, factor in the deductible, not just the monthly premiums.
Health plan deductibles aren’t one-size-fits-all. For some people, a high deductible may be better. For others, a low deductible is preferable.4
Many health insurance plans provide coverage for certain healthcare benefits – like preventive well-visits – before you meet your deductible, so read the fine print to see what’s being offered.5
Why is There a Deductible?
Higher deductibles can help health insurance companies save money because they may discourage people from seeking unnecessary appointments, medication, tests, or procedures. If you haven’t met your annual deductible, you might be hesitant to go to the doctor for a minor concern because you’ll be required to pay out-of-pocket for the appointment.6
Employers that offer health insurance to their employees may save money by offering health plans with higher deductibles because the plans pass along more of the healthcare costs to employees. The potential for cutting costs is appealing and a growing number of companies offer higher-deductible plans.7
How Does a Deductible Work?
Deductibles are one way that health insurance providers incorporate cost-sharing – the amount that you contribute toward your own healthcare costs, in addition to premiums – into insurance plans. The most common types of cost-sharing are deductibles, coinsurance, and copayments.
Once you meet your deductible, you’ll pay a portion of the fee for healthcare services and your insurance company will pay the remainder. If your plan has copays, you’ll pay a set amount for various services and there can be different rates within the same plan. For example, you may have a $20 copay when you see your primary care doctor, but you’ll pay $50 when you see a specialist. There may be set copays for ER visits, lab tests, prescription drugs, and more.
If your plan has coinsurance, you’ll pay a set percentage of the fee for various services and the percentage may vary. Depending on your plan, you’ll pay 20%, 30%, or a different percentage of your healthcare costs and your insurance company should pay the rest.
Whether you have coinsurance or copayments, expect to pay more for out-of-network providers than for those within your health plan’s network.8
Affordable Care Act Deductibles Have Risen Steadily
Deductibles for health insurance plans available under the Affordable Care Act have risen steadily since the federal and state exchanges launched in 2014.
- The average median deductible for all Bronze, Silver, Gold and Platinum plans grew from $2,528 in 2014 to $3,375 in 2021. The most popular Silver plans saw the greatest increase, growing $1,809 over seven years to $4,879 in 2021.
- The second most popular Bronze plans also saw sustained rises, growing $1,674 from launch to $6,992 at present.
- Pricier Gold plan deductibles posted only a small increase and the most expensive Platinum plans dropped.
If you have a high deductible plan, remember that, depending on your income bracket, you may qualify for cost sharing subsidies for treatments that fall below your deductible.
Affordable Care Act: Median Deductibles
Is There a Cap on Out-of-Pocket Spending?
There’s a cap on the amount that you’ll pay out-of-pocket for healthcare costs each year. In 2020, the out-of-pocket maximum you’ll spend on expenses like deductibles, copayments, and coinsurance is $6,900 for an individual or $13,800 for a family. Once you’ve reached that limit, your insurance company should cover the remainder of costs for the year as long as you see in-network providers. You’d still be responsible for costs from out-of-network visits.9 Each insurance company sets out-of-pocket maximums for its own plans, including plans that are available through the Affordable Care Act, so the dollar amount varies by the plan. However, each plan’s out-of-pocket maximum must fall below $6,900 for individuals or $13,800 for families this year.
Some health plans have separate deductibles for prescription drugs.10 And if you have family coverage, you may have to meet separate deductibles for each family member and for the family unit as a whole before the plan starts to cover costs.11
What is a High-Deductible Health Plan?
Most private health insurance plans have deductibles12 and every plan available through the Affordable Care Act (ACA) has one.13 In 2020, health plans are considered to be high-deductible if you’re required to pay a minimum deductible of $1,400 out-of-pocket for an individual plan or $2,800 out-of-pocket for a family plan.14 Almost half of all Americans have high-deductible health plans.15
If you have a high-deductible plan, a health savings account (HSA) may help you save on healthcare expenses. HSAs are available to people with high-deductible plans whether you get health insurance through an employer or the ACA.16
In 2020, you can contribute pre-tax dollars to your HSA account up to $3,550 for individuals or $7,100 for families, then use those funds on medical expenses, including deductibles, copays, and coinsurance.17 The funds are never taxed unless you spend the money on nonmedical expenses, and they roll over from year to year without penalty.18
What Are Some Examples of a Deductible?
If you have a $1,400 deductible for an individual health plan, you’ll need to pay out-of-pocket for all healthcare expenses until you’ve spent $1,400. If a doctor visit costs $200, you’d pay for seven appointments before your insurance coverage would begin.19 If you have a separate deductible for prescription drugs, you’ll need to pay out-of-pocket for the full cost of the medication until you reach the deductible, and you may pay $50 or $125 for a drug that otherwise has a $5 or $15 copay.20
How Do You Choose the Right Deductible for You?
Think about how often you visit a doctor, whether you take prescription drugs regularly, and if you tend to have unexpected healthcare expenses. You may realize that a low- or high-deductible health plan would suit your lifestyle best.21
When choosing a health plan, look beyond the premiums. Consider the deductible, your overall health, how often you see a doctor, and whether you take maintenance medications. By considering all of these variables, you’ll be more likely to choose a health plan that’s a good fit for your lifestyle and your wallet.22