What is a Deductible?

So, the first round of posts at this place will be a few definitions of common insurance and medical billing terms that are helpful for people to understand when trying to decipher mounds of insurance paperwork. Once we've established the key terms that you might hear while you're trying to navigate your medical billing and insurance issues, we can start talking about what you should do if you encounter a range of common problems.

Okay, so first off: What is a Deductible?

The term "deductible" refers to the amount of money that a patient (or family) is required to pay toward their medical expenses before their insurance company will begin making payments on claims filed on their behalf.

In other words, once you begin coverage with an insurance policy, they will immediately process all claims sent to them on your behalf. However, they will not make payment on any of your claims until they have received $1000 (or however much your deductible is) in charges from various doctors. So your doctor's office will send the claims to your insurance like normal, but you will ultimately be billed by your doctor for the full amount of the bill* and you will be fully responsible for payment. Once you have been billed for the first $1000 (or whatever your deductible is) of treatment, your insurance will begin to actually make payments on your behalf to your doctors' office.

Deductibles reset every policy year (so you should make careful note of the start date of your policy), so that you will have to pay the first portion of your medical charges out of pocket every single year you are on the policy.

Deductibles also apply to patients, not to a specific doctor. So you will not have to pay a separate deductible to each doctor's office - just one per patient per policy year.

You will probably have two separate deductibles listed on your policy - one for in-network doctors, and a higher one for out-of-network doctors. We'll talk more about the distinction between them in the future. For the time being, though, try to see only in-network doctors whenever possible.

It's worth noting that some policies will have exceptions to the deductible listed in the contract - they will agree to pay for two office visits before the deductible kicks in, for example ... or not apply the deductible to preventative care services or prescriptions or something similar. If you have a policy like that, make sure that you pay careful attention to what services are exempt from the deductible, and make sure your insurance company processes those bills correctly.


Two important things to understand about deductibles:

Make sure your doctor's office sends your bills to the insurance, even if you have a high deductible

If you have a really high deductible, you might be tempted to just pay cash for all of your doctor's visits up front since you know insurance will not pay.

DO NOT DO THIS IF YOU CAN AVOID IT.

If you pay cash for your medical charges and bills are not sent to your insurance company as a result, you will not get credit toward your deductible. This is tremendously important. Even if your deductible is huge, you want to make sure you are getting credit applied toward it by your insurance company. That way, if you do wind up in the hospital with expensive medical bills, you will not have to meet your full deductible on top of what you've already paid your doctor's office. Instead, the charges from your doctor's office will be subtracted from the deductible, so the total amount of bills you will pay for all of your medical services that year will be lower.

If you find yourself at a doctor's office that is trying to force you to pay "your deductible" up front, try not to do so. But if you can't avoid it, make absolutely sure that the office is still going to send the bill to your insurance. I would also recommend calling your insurance a month or so later to make sure that they've gotten a claim from your doctor for that date.

It may not make much of a difference if you don't rack up medical bills that year, but in the event that you do, this strategy can save you significant money.

Premium v. Deductible Amounts
The deductible is separate from your insurance premium - so importantly, you will still be paying your insurance premiums even if you haven't met your deductible and are therefore still paying out of pocket for your health care costs. This can become an important thing to think about if you are at the point of choosing a new insurance plan to buy.

Let's pretend you are deciding between two insurance policies:

• The first has a monthly premium of $347 and an annual deductible of $2000
• The second has a monthly premium of $210 and an annual deductible of $10,000

The second plan might look like a better deal since the premium is lower. And for some people, it might be.

However, if you are someone who thinks you may be using your health benefits reasonably often, you may want to think twice about that conclusion. Under the first plan, your monthly premium will be higher. However, you will only have to pay $2000 in medical expenses in addition to your monthly premium before your insurance will start to pay claims on your behalf.

Under the second plan, your premium might be lower, but you will have to pay out five times as much in your medical expenses on top of your premium before your insurance would start to pay claims. While it's possible to run through $10,000 pretty quickly if you needed surgery or an inpatient hospital stay, it is quite possible that you would never hit that limit throughout the year.

"Premium v. deductible amounts" is a tradeoff that you should absolutely, definitely consider when purchasing a health insurance plan.
 

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*Minus an "adjusted amount" in some cases, which we will discuss in a later post.