What is a deductible? In short, it’s the amount you pay for health care services before your insurance will pay out for your medical costs. But what does that look like in action?
Say your health care plan has a deductible of $1,000. You fill a few prescriptions, running you about $400. You are fully responsible for paying that $400.
Now, imagine you’re on a relaxing fishing trip — relaxing, that is, until your phone goes overboard. You jump in to get it, but the jagged rocks under the water leave you worse for wear. You go to the hospital and end up with a $1,500 bill. Since you already paid $400 toward your deductible earlier in the year, you only have to pay for the first $600. At that point, you’ve reached your deductible. Your insurance will pitch in the remaining $900 to cover the hospital bill, along with any other medical costs for the rest of the year.
Keep in mind that plans with higher deductibles tend to have lower monthly costs, while lower-deductible plans have higher monthly premiums. The right balance is different for everyone, and choosing a comfortable deductible will depend on factors like your tolerance for risk, your ability to pay out-of-pocket costs and your existing monthly expenses. If you can only afford a high-deductible health plan, supplemental policies like critical illness, accident and fixed indemnity insurance are there to help you absorb the costs you’re responsible for, including deductibles.
Really, what is a deductible? It’s a tool for making your insurance work for you. Give yourself time to figure out how it works.