What Is a Health Insurance Deductible? What You Pay Before Coverage Begins

A health insurance deductible is what you must pay out of pocket before your health insurance kicks in and covers your medical expenses. Keep in mind that your monthly premiums, copays and coinsurance do not count toward your deductible.

Learn how deductibles affect your monthly premium and which deductible you should choose.

Key Takeaways Health insurance deductibles are what individuals must pay out of pocket before their insurance starts paying for their medical expenses. Deductibles will no longer apply after an individual reaches their plan’s annual out-of-pocket maximum. Young and healthy individuals may want to choose high-deductible health plans, which often charge lower monthly premiums. Not all out-of-pocket medical expenses will count toward your deductible.

How Do Health Insurance Deductibles Work?

Individuals choose their deductible when buying a health insurance policy and typically range from lower than $1,400 to higher than $2,800.^[1]  When an individual incurs a medical expense and pays it, they pay towards their deductible. Only after reaching their deductible does the individual’s insurance company start paying for the policyholder’s medical expenses.

Consider this simplified example: An individual has a $1,000 deductible and incurs $2,000 in medical expenses. The individual pays the first $1,000, meeting their deductible, and their insurance pays the remaining $1,000.

Insurance is a cost-sharing mechanism and deductibles are one way the individual shares the cost of medical expenses (alongside monthly premiums, copays and coinsurance).

It is important to understand that deductibles can apply to all types of covered medical expenses, including doctor visits, hospital stays and lab tests. Some insurance plans may also have separate deductibles for specific types of medical expenses, such as prescription drugs.

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Does Every Healthcare Plan Have a Deductible?

With HMO and POS plans, your insurer may charge a low or no deductible if you receive services from an in-network provider. Keep in mind that zero-deductible plans typically have high monthly premiums. PPO and EPO plans will usually charge deductibles, regardless of which provider you use.

What Is an Out-Of-Pocket Maximum?

An out-of-pocket maximum is a cap on the amount an individual pays out of pocket for medical expenses in a given year. After reaching the cap, your health insurance plan covers all your medical costs for the remainder of the year, including your deductible. Deductibles, copays and coinsurance all count toward an individual’s out-of-pocket maximum. Monthly premiums, however, will not count.

An example would be a young lady named Kate who has a $5,000 maximum. The illustration below shows how her costs work with her plan.

What Costs Count Towards a Deductible?

Not every out-of-pocket medical expense is going to count toward your deductible. Below is a list that shows which expenditures count toward your deductible.^[2]

Counts Toward Deductible	Does Not Count Toward Deductible
Hospitalization bills	Copays (typically)
Surgery	Monthly premiums
Lab Tests	Any costs not covered by your plan
MRIs and CAT scans
Anesthesia
Doctor and therapist visits not covered by a copay
Medical devices (e.g., pacemakers)

Individuals should review their insurance plan's summary of benefits and coverage or speak with their insurance company to understand what expenses count towards their deductible.

What Is the Difference Between a Deductible and Copay?

The deductible is the amount you’re required to pay out of pocket (on top of your monthly premium) before your health insurance begins to cover medical expenses. A copay in health insurance is a flat fee paid each time you use a healthcare service, such as visiting the doctor, going to urgent care or picking up prescription drugs. For example, you may be charged a $25 copay each time you visit your primary care physician and $10 each time you pick up a drug prescription.

Copays usually won’t count toward your deductible. Even after fully meeting your deductible, you may still have to pay a copay each time you use a healthcare service.

What Kinds of Health Insurance Deductibles Are There?

There are commonly four types of deductibles: individual, true family, combined and embedded.

Individual Deductible

This type of deductible applies only to the individual covered under the insurance plan. The individual must pay the entire deductible amount before their insurance coverage begins to pay for their medical expenses.

True Family Deductible

An individual's medical expenses can cover the deductible amount for the entire family, removing the requirement for everyone to need to meet their own deductible before their healthcare covers medical costs. In other words, the entire family shares one deductible and when each person pays an out-of-pocket cost, it counts towards the same shared deductible.

Combined Deductible

If your plan has a combined deductible, that means your medical deductible and your pharmacy deductible are rolled into a single amount. Whether you pay for visiting the doctor or picking up a prescription, either will count towards the same deductible.

Embedded Deductible

An embedded deductible is a type of individual deductible that is built into a family insurance plan. Each individual covered under the plan must meet their individual deductible before the family deductible is triggered and their insurance coverage begins to pay for their medical expenses.

What Are High-Deductible and Low-Deductible Health Plans?

A high-deductible health plan (HDHP) is a health insurance plan with a higher deductible than a traditional insurance plan. HDHPs often charge lower monthly premiums but then require individuals to pay a larger portion of their medical expenses before their insurance coverage begins to pay.

Conversely, a low-deductible health plan (LDHP) is a health insurance plan with a lower deductible but higher premium payments.

Which Is Better?

The choice between an HDHP or an LDHP will depend on an individual's specific needs and financial situation. Young and healthy individuals who do not expect to require frequent medical attention may opt for a HDHP to save on monthly premiums.

On the other hand, individuals who require frequent medical attention or have a chronic medical condition may opt for a LDHP to reduce their out-of-pocket expenses and get coverage more quickly. For example, a sickly senior that requires frequent specialist visits and expensive prescriptions may want a lower deductible so their insurance company can start paying for their medical expenses more quickly.

How Do I Know What Deductible Amount To Choose?

Choosing the right healthcare deductible can be challenging, as it will impact your monthly premium. Here are some factors to consider when deciding what healthcare deductible amount to choose:

• Health needs: If you have a chronic medical condition or expect to need frequent medical attention, a lower deductible may be a better option for you, as it will reduce your out-of-pocket expenses.
• Budget: Consider your monthly budget and what you can afford in terms of monthly premiums and out-of-pocket expenses. A higher deductible plan will have lower monthly premiums, but you will be responsible for paying more before your insurance coverage begins to pay.
• Emergency fund: Check if you have enough savings to cover a large deductible in case of an unexpected medical event.
• Prescription coverage: Consider if the plan covers your medications and if the cost of your medications will impact the out-of-pocket maximum.
• Flexibility: Consider if the plan allows you to change the deductible amount in the future if your health needs or financial situation changes.
• Subsidies: If you are eligible for subsidies that can lower your monthly premium, such as the premium tax credit, make sure to factor this into your decision.

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