What is A Health Insurance Deductible?
Your health insurance deductible is the amount you have to pay out-of-pocket for covered services before your insurance begins to pay. It doesn’t include premiums, or costs that aren’t covered by your plan. Once you meet your deductible your plan will pay it’s share of your coinsurance.
TIP: The maximum deductible is equal to the maximum-out-of-pocket limit each year ($7,150 for an individual and $14,300 for a family for 2017). To fund an HSA one must have a “High Deductible Health Plan” with a deductible higher than (Self-only: $1,300 Family: $2,600 for 2017).ObamaCare can help decrease your deductible if you qualify for Cost Sharing Reduction subsidies on the Marketplace. If you want to save even more, try pairing a high deductible health plan with an HSA.
How Do Health Insurance Deductibles Work?
Most out-of-pocket costs covered by your plan count toward your deductible when you pay them. Other covered services without cost sharing before your deductible also count toward your deductible. Once you reach your deductible limit within a policy period your coinsurance kicks in and your plan starts to pay it’s share of covered costs (coinsurance). Once you reach your out-of-pocket maximum, all covered costs are paid by your insurer!
- In 2015, your out-of-pocket maximum could be no more than $6,600 for an individual plan and $13,200 for a family plan before marketplace subsidies.
- In 2016, your out-of-pocket maximum could be no more than $6,850 for an individual plan and $13,700 for a family plan before marketplace subsidies.
- In 2017, your out-of-pocket maximum can be no more than $7,150 for an individual plan and $14,300 for a family plan before marketplace subsidies.
How Does ObamaCare Affect Deductibles?
Under ObamaCare Major Medical plans must meet certain cost sharing requirements and can’t have deductibles higher than out-of-pocket maximum limits which are $7,150 for an individual and $14,300 for a family for 2017 plans (they are slightly lower on HSA eligible plans). Depending on your income and plan you choose deductibles can be lower, but not higher than those amounts. This applies only to in-network deductibles.
ObamaCare also lowers the amount of out-of-pocket spending you are responsible for in a year by capping out-of-pocket maximums between 100% – 250% of the poverty level (deductible can never exceed a plan’s maximum).
Cost Sharing Reduction Subsidies and Deductibles
Tax credits won’t lower your deductibles, but both Cost Sharing Reduction subsidies and Medicaid will. Your deductible can never be higher than your out-of-pocket maximum.
Actuarial value with Cost Sharing Reduction Subsidies
Actuarial value is the average amount of covered costs a plan will pay. It helps insurers and you determine how good a plans cost sharing is and this can relate to your deductible as it is an out-of-pocket cost. Cost Sharing Reduction subsidies increase the actuarial value of a plan, meaning that you’ll have lower out-of-pocket costs for things like deductibles, copays, and coinsurance. Cost Sharing Reduction subsidies are only offered on Silver marketplace plans, which typically have an actuarial value of 70%.
We’ve also included limits for out-of-pocket maximums based on income. Since your deductible can never be higher than your maximum this is worth noting.
Income Level Actuarial Value (the amount of costs a Silver plan will cover due to cost sharing reduction subsidies for % of the Poverty Level).
100-150% FPL = 94% Actuarial Value
150-200% FPL = 87% Actuarial Value
200-250% FPL = 73% Actuarial Value
More than 250% FPL = 70% Actuarial Value
Out-of-pocket maximum limits:
- 100-200 percent of FPL,
- your out-of-pocket limit won’t be more than $2,250 for an individual.
- your out-of-pocket limit won’t be more than $4,500 for a family.
- 200-250 percent of FPL,
- your out-of-pocket limit won’t be more than $5,200 for an individual.
- your out-of-pocket limit won’t be more than $10,400 for a family.
- More than 250% percent of FPL,
- your out-of-pocket limit won’t be more than $6,600 for an individual.
- your out-of-pocket limit won’t be more than $13,200 for a family.
What is Considered a High Deductible Health Plan (HDHP)
A High Deductible Health Plan (HDHP) is a plan that has a high enough deductible it qualifies for an Health Savings Account (HSA), but this isn’t the only criteria for HSA eligible plans.
For a high deductible plan to qualify for HSA eligibility it must: 1) Meet the minimum High Deductible limit which which is adjusted annually. 2) Not exceed the maximum Out-of-Pocket Max limits which is adjusted annually. 3) It must not provide any additional benefits except for Preventative Care before the deductible is met (including cost sharing like copays). There are some exceptions to this rule, but again insurers are required to tell you if a plan is HSA eligible.
High Deductible Health Plans (HDHP) and HSAs
If you don’t use a lot of medical services you may want to consider a High Deductible Health Plan (HDHP) paired with an Health Savings Account (HSA). This will allow you to deposit and spend tax free dollars on out-of-pocket medical expenses, can lower your tax bracket, and can qualify you for more cost assistance on the Marketplace.
You’ll pay most of your out-of-pocket costs yourself and typically will have the same deductible as you do out-of-pocket maximum. Your premium will be less than a higher deductible plan, so essentially you will pay less and rely less on your insurer. HDHP’s can be intimidating due to the out-of-pocket costs, but the tax advantages of an HSA actually outweigh the upfront costs resulting in people actually paying less over-time. You can get the details on HDHPs and HSAs here.
Deductibles and Policy Periods
Your deductible resets every policy period. Keep this in mind as timing can affect how much your plan pays. If you start a plan late in the year you may want to go with a very low or very high deductible plan, as you may not have a full year to take advantage of your deductible (a typical marketplace plans start on Jan 1st and ends on Dec 31st). Make sure to enroll in a plan by December 15th each year to take advantage of a full policy period.
FACT: If you drop your plan, switch it, or don’t make a payment you could be out your deductible and other out-of-pocket costs. If you are going to switch plans mid-year try to stay with the same provider and see if they will roll over your out-of-pocket costs.
Deductibles and Networks
If you shop out-of-network your out-of-pocket costs may not be applied to your deductible. In other cases they will be applied at a lower rate. In other cases you will have a separate out-of-network deductible. Look at your benefit summary to understand what services are covered and what services are covered in-network and how your plan treats out-of-network cost sharing.
Deductibles and Premiums
Low deductible plans tend to have a high premium, high deductible plans tend to have a low premium. Your premium payments do not count toward your deductible.
Deductibles and Coinsurance
Your coinsurance typically won’t kick in until you have met your deductible. On a high deductible plan your deductible might be the same as your out-of-pocket maximum, so coinsurance may never even be a factor!
Your coinsurance is typically a percentage (unlike a copay which is a fixed amount). The amount you pay over what your insurer covers continues to go toward your out-of-pocket maximum, even after your deductible has been met.
Deductibles and Copays
Some plans offer copays, which is a set amount you pay for a service. Typically a copay will be offered before you reach your deductible, but not always. The amount you pay in copays for covered services goes toward your deductible and out-of-pocket maximum. This is not the same as coinsurance.