In the expansive and often confusing world of health insurance, a lot of terms are tossed about. These words may be confusing to a first-time health insurance buyer or anyone trying to understand how health insurance works.
In order to make informed choices, it’s important that you understand the terms surrounding the money you pay toward health insurance and medical costs.
A health insurance deductible is a specified amount or capped limit you must pay first before your insurance will begin paying your medical costs.
For example, if you have a $1000 deductible, you must first pay $1000 out of pocket before your insurance will cover any of the expenses from a medical visit. It may take you several months or just one visit to reach that deductible amount.
You’ll pay your deductible payment directly to the medical professional, clinic, or hospital. If you incur a $700 charge at the emergency room and a $300 charge at the dermatologist, you’ll pay $700 directly to the hospital and $300 directly to the dermatologist. You don’t pay your deductible to your insurance company.
Now that you’ve paid $1000, you have “met” your deductible. Your insurance company will then start paying for your insurance-covered medical expenses.
Your deductible automatically resets to $0 at the beginning of your policy period. Most policy periods are 1 year long. After the new policy period starts, you’ll be responsible for paying your deductible until it’s fulfilled.
You may still be responsible for a copayment or coinsurance even after the deductible is met, but the insurance company is paying at least some amount of the charge.
A health insurance premium is the amount you pay each month to your insurance provider. This is the only payment you’ll have if you never use your health insurance.
You’ll continue to pay premiums until you no longer have the insurance plan. A deductible, on the other hand, only has to be paid if you use the insurance.
Premium prices increase with each additional person you add to your insurance plan. If you’re married and covering your spouse, your premium price will be higher than a single person with the same plan. If you’re married and covering your spouse and two children, your premium price will also be higher than for a single person or a married couple with the same coverage.
If you receive insurance through an employer, your premium is typically deducted directly from your paycheck. Many companies will pay a certain portion of the premium. For example, your employer may pay 60 percent, and then the remaining 40 percent would be deducted from your paycheck.
Your health insurance will begin paying for your healthcare expenses once you meet your deductible. However, you may still be responsible for an expense each time you use the insurance.
A copayment is the portion of a medical insurance claim that you’re responsible for paying. In most cases, a doctor’s office will request the copayment at the time of your appointment.
Copayments are usually fixed, modest amounts. For example, you may be responsible for a $25 copay every time you see your general practitioner. This amount varies among insurance plans.
In some cases, the copayment isn’t a set amount. Instead, you may owe a set percentage based on the amount your insurance will be charged for the visit.
For example, your copayment may be 10 percent of your visit’s charges. One visit may be $90. Another could be $400. For that reason, your copayment may change at each appointment.
If you use visit a medical professional, clinic, or hospital outside your insurance’s approved network, you may have a different copayment than you do when using one that’s in network.
Some health insurances limit the percentage of your medical claims they’ll cover. You’re responsible for the remaining percentage. This amount is called coinsurance.
For example, once your deductible is met, your insurance company may pay 80 percent of your healthcare expenses. You’d then be responsible for the remaining 20 percent. Typical coinsurances range between 20 and 40 percent for the insured individual.
You don’t begin paying your coinsurance until your deductible is met. If you use medical services outside your insurance’s approved network, your coinsurance amount may be different than if you’d used services in the network.
Your out-of-pocket maximum is the most you’ll pay during a policy period. Most policy periods are 1 year long. Once you reach your out-of-pocket maximum, your insurance plan will pay all additional expenses at 100 percent.
Your deductible is part of your out-of-pocket maximum. Any copayments or coinsurances are also factored into your out-of-pocket maximum.
The maximum often doesn’t count premiums and any out-of-network provider expenses. The out-of-pocket maximum is typically rather high, and it varies from plan to plan.
High-deductible, low-premium insurance plans have gained popularity in recent years. These insurance plans allow you to pay a small amount each month in premium payments.
However, your expenses when you use your insurance are often higher than that of a person with a low-deductible plan. A person with a low-deductible plan, on the other hand, will likely have a higher premium but a lower deductible.
High-deductible insurance plans work well for people who anticipate very few medical expenses. You may pay less money by having low premiums and a deductible you rarely need.
Low-deductible plans are good for people with chronic conditions or families who anticipate the need for several trips to the doctor each year. This keeps your up-front costs lower so you can manage your expenses more easily.
The answer to this question depends largely on how many people you’re insuring, how active you are, and how many doctor visits you anticipate in a year.
A high-deductible plan is great for people who rarely visit the doctor and would like to limit their monthly expenses. If you choose a high-deductible plan, you should begin saving money so that you’re prepared to pay any medical expenses up front.
A low-deductible plan may be best for a larger family who knows they’ll be frequently visiting doctors’ offices. These plans are also a good option for a person with a chronic medical condition.
Planned visits, such as wellness visits, checkups on chronic conditions, or anticipated emergency needs, can quickly add up if you’re on a high-deductible plan. A low-deductible plan lets you better manage your out-of-pocket expenses.
If you’re trying to pick the right insurance for you, visit with a local health insurance provider. Many companies offer one-on-one guidance counseling to help you understand your options, weigh your risks, and select a plan that’s right for you.
Updated July 01, 2019 -- For Administrators
The deductible limit is the maximum amount in a given year that a plan participant may have to pay in deductibles before the plan coverage is required to satisfy the full amount of claims.
- A calendar year deductible, which is what most health plans operate on, begins on January 1st and ends on December 31st. Calendar-year deductibles reset every January 1st.
- A plan year deductible resets on the renewal date of your company's plan. For example, if your health plan renews on May 1st, then your deductible would run from May 1st to April 30th of the following year, and reset on May 1st.
Your carrier may specify this in your contract - try searching for annual deductible, deductible, or calendar year. If you are having trouble locating this information, please contact your HR contact, broker, or carrier.
If you have more than one renewal date, please pick the earliest of dates. For example, if you have a calendar year deductible, and a plan year deductible of June 1st, select the calendar year (January 1).
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It may seem unfair to have to pay your entire deductible if you don’t sign up for health insurance until the middle the year. After all, you’re only getting health insurance for half of the year if you enroll mid-year; shouldn’t the deductible be prorated to half of the annual deductible?
This article will explain what you should expect interms of potential out-of-pocket costs if you're enrolling in a new health plan that starts mid-year.
John Lund/Getty ImagesSince deductibles are so expensive, requiring payment of the full annual deductible if you enroll after part of the policy-year is over makes it less likely you'll reach your deductible that year. In this case, you'll be less likely to reap the benefit of having your health insurer start to pay post-deductible benefits when you have claims.
Unfortunately, an annual health insurance deductible isn’t prorated for partial year enrollees no matter how few months are left in the plan-year when you sign up for health insurance. The out-of-pocket maximum isn't prorated, either.
You’re uninsured for the months of January through June. You get married during the month of June making you eligible for a special enrollment period (note that this special enrollment period is available if you're eligible for your employer's plan, but it would only be available for an individual market plan—including a plan purchased in the exchange—if you or your spouse already had coverage before getting married).
You sign up for health insurance coverage on your state’s Affordable Care Act health insurance exchange starting on July 1, and we'll say the plan has an annual deductible of $3,000.
All Obamacare plans (on and off-exchange) have a plan year that runs from January 1 through December 31. If you use your health insurance between July 1 and December 31 for anything other than preventive health care or services that are covered with a copay, your health insurer won’t begin to pay part of your healthcare bills that are subject to the deductible until you’ve paid the entire $3,000 deductible (note that this is just the example we're using; the plans available in the exchanges can have deductibles that range from $0 to more than $8,000).
Even though you only have health insurance coverage for half of the year, you still have to pay the entire deductible before your insurer will start picking up the tab.
But if you have coverage that includes copays for things like office visits and prescriptions, those benefits can kick in from the start, regardless of whether you've paid anything towards the deductible. And the ACA's free preventive care also kicks in right away, without you needing to pay any out-of-pocket costs.
You’re hired for a new job in early February. Your new employer will provide health insurance coverage as part of your employee benefits package starting March 1. The employer has open enrollment every August for a plan year that runs from October 1 through September 30 of each year.
Your employer's health plan might have a deductible that follows the plan year, which means it would reset each year on October 1. But they may use a calendar-year deductible, which would mean that the deductible still resets each year on January 1, even though the plan renews in October. You'll want to check with your employer to determine which approach the plan uses.
If the plan resets the deductible in line with the plan year, your deductible will reset to $0 on October 1, which is seven months after you enrolled. If the plan has a calendar year deductible, it will reset to $0 on January 1, which is nine months after you enrolled. Either way, your deductible is going to reset to $0 before you've been on the plan for a full year, since you enrolled mid-year.
Note that if an employer-sponsored policy has a non-calendar plan year but a calendar year deductible, they will likely have a deductible carry-over credit if the employer switches to a different plan at the renewal date. And if that employer opts to switch to a different insurer, they may be able to establish a deductible carry-over credit for all employees who have already paid money towards their deductible that year.
Many employers opt to use calendar-year plans, and hold their open enrollment in the fall to correspond to a January 1 start date for the plan year. This keeps things simple and ensures that the plan year and the calendar year are aligned. But employers have flexibility in this and can purchase a plan at any time during the year to cover their employees.
And employees can be hired at any time of the year, meaning that mid-year enrollments are quite common, even for employer-sponsored plans that follow the calendar year.
What if you switch from one health plan to another during the policy year? In almost all cases, the amount you had already paid toward your annual deductible in the health plan you had early in the year is not credited toward the annual deductible in the health plan you have later in the year.
When you enroll in the new health plan, the amount you’ve paid toward your new deductible starts at zero even if you had already paid your entire annual deductible in the other plan.
An exception, noted above, is generally available when an employer or employee with a non-calendar-year plan opts to switch to a different plan—from the same insurer or even a plan offered by a different insurer—during the group's annual renewal period.
Although deductibles generally aren't transferable from one plan to another (especially when different insurance companies are involved) unless it's a plan change during an employer's open enrollment period, this can sometimes be modified based on extenuating circumstances that impact a large number of policyholders and intervention from the state Insurance Commissioner.
For example, there were widespread exceptions granted in 2021, for people who had individual/family coverage and opted to switch to a different plan during the COVID/American Rescue Plan special enrollment period. In many cases, insurers agreed to allow out-of-pocket spending to transfer to the new plan, although in almost all cases, this was only available if the person picked a new plan from the same insurance company.
Another example is the solution that was created for members of New York's Health Republic Insurance, which shut down in November 2015. An agreement between NY state regulators and three private insurance companies allowed Health Republic members to get credit (on their new December 2015 coverage) for their deductible and out-of-pocket expenses that they had already paid during the first 11 months of the year. Oregon regulators worked out a similar agreement for Oregon Health CO-OP members when the CO-OP shut down at the end of July 2016.
But this is not usually an issue, as health insurer shut-downs and market exits—which are generally rare anyway—tend to happen at the end of the calendar year. In that case, members switching to a new plan would have been starting over with a new deductible even if they had been able to keep their plan for the new year.
Some insurance companies will also make exceptions when an enrollee switches from one plan to another within the same insurance company. An example might be a person who has individual market coverage and then switches to a small group plan with the same insurer mid-year, or a person who has coverage under an off-exchange plan and then switches to an on-exchange version of the same plan mid-year due to a qualifying event.
There is no requirement that the insurer credit the enrollee for the amount they had paid towards their deductible on the first plan, but there is also nothing preventing them from allowing a deductible carryover credit—and it can't hurt to ask, because sometimes they say yes.
You had health insurance coverage with an individual market plan (ie, a plan you bought yourself, either in the exchange or directly from an insurer) from January 1 through July 31. During that time, you paid $1,300 toward your $5,000 health insurance deductible. You drop your individual plan when you get job-based health insurance coverage beginning August 1. This new job-based coverage has an annual deductible of $1,000.
The $1,300 you already paid toward your individual plan's deductible does not count toward your new job-based health insurance deductible. You must start from scratch, paying the entire $1,000 job-based health insurance plan’s deductible before that insurer begins to pick up the tab for your medical bills that are subject to the deductible.
(As noted above, it's possible—although unlikely—to end up in a situation in which the individual market plan was offered by the same insurer that's offering the new job-based plan, and get them to agree to a deductible carryover credit. But this is the exception to the rule; in general, you should expect to have to start over with your deductible if you switch to a new plan mid-year).
There’s no way to recoup all of the additional money you spent toward your health insurance deductible when you switch plans mid-year after paying the first plan’s deductible. However, cost-sharing expenses like deductibles, copays, and coinsurance can sometimes be used as a tax deduction resulting in lower income taxes.
And if you have a health savings account, you can use the tax-free money in the account to cover your out-of-pocket costs, including the potentially higher costs you might face if you end up having to switch plans mid-year.
Health insurance deductibles (and out-of-pocket maximums) are not prorated when a person joins a plan mid-year. They still have to meet the regular annual deductible before post-deductible benefits kick in.
There are occasionally exceptions to this rule, when a new health plan will give a person credit for the amount they already spent in the current year on another health plan's deductible. But this tends to be quite rare, and usually results from extenuating circumstances.
If you're switching health plans mid-year, you'll likely have to meet the new health plan's full deductible before receiving any post-deductible benefits. But it's always a good idea to ask whether you can get a credit for money you've spent earlier in the year toward another health plan's deductible. Depending on the circumstances, you might find that the health plan agrees to this credit. Although this is uncommon, you won't know for sure until you ask. The worst they can say is no.