Health Insurance Deductible: What It Is and How It Works

You don't have to remember high school algebra to understand your deductible,but you do need to know when you owe it and when you don't. Image © Cevdet Gokhan Palas/Vetta collection/Getty Images

If your health insurance comes with one or more deductibles, you'll end up paying a few hundred dollars to several thousand dollars. Understanding what this deductible is, how it works, when you have to pay it, and when you don’t have to pay it is part of using your health insurance wisely.

What Is a Health Insurance Deductible?

Your deductible is a fixed amount you have to pay each year toward the cost of your health care bills before your health insurance coverage kicks in fully and begins to pay (if you're enrolled in Medicare, the Part A deductible is based on benefit periods rather than the calendar year).

How a Deductible Works—an Example

 Let’s say your health insurance requires a $1000 annual deductible, and all non-preventive services are counted towards the deductible.

  1. In January, you get bronchitis.
    • Total bill = $200. (Doctor, prescription.)
    • You pay $200.
    • Your health insurance pays $0.
    • $200 is credited toward your deductible.
    • $800 remaining before deductible is met.
  2. In April, you find a lump in your breast. The lump turns out to be benign; you’re healthy.
    • Total bill = $4,000. (Doctors, tests, biopsy.)
    • You pay $800. (Now you’ve met your $1000 deductible.)
    • You pay any copayments or coinsurance your health plan requires.
    • Your health insurance pays the rest of the bill.
  3. In September, you break your arm.
    • Total bill = $2,500. (Emergency room, doctor, X-ray, cast.)
    • You pay copayments and coinsurance, but no deductible.
    • Health insurance pays the entire bill minus your copayment and coinsurance.
  4. Next January, you’ll start the process all over again.

    In most health plans, once you’ve paid the deductible for the year, you’re done with deductible payments until next year. Each year, the health plan sets a new deductible. Sometimes it’s the same amount as the year before; sometimes it goes up.

    Different Types of Deductible

    Some health plans have more than one type of deductible.

    • Annual Deductible

    This is the most common type of deductible and is what’s described in the example above.

    • Per-Episode Deductible

    Unlike an annual deductible, a per-episode deductible happens each time you get a particular type of service. For example, your health insurance may require a $1,000 deductible each time you’re hospitalized (some plans will refer to this as a copay instead, but the magnitude of the charge means that from the consumer perspective, it's similar to a deductible). Per-episode deductibles are less common than annual deductibles, although as noted above, Medicare Part A assesses deductibles based on benefit periods rather than calendar years.

    • Out-Of-Network Deductible

    Some health plans, PPOs in particular, have one annual deductible for care you receive from in-network doctors and a higher annual deductible for care you get from out-of-network providers.

    For example, if your health plan has a $1,000 in-network annual deductible and a $2,000 out-of-network deductible, your health plan would start paying for your in-network health care after you’ve paid $1,000 toward your in-network bills. If you then started seeing an out-of-network specialist, you’d have to pay $2,000 toward that out-of-network care before your health plan would start paying anything for your out-of-network care.

    The $1,000 you’ve already paid as an in-network deductible doesn’t count toward your out-of-network deductible.

    In some health plans, any amount you pay toward your out-of-network deductible also counts toward your in-network deductible. In other health plans, the two deductibles are totally separate (note that some plans simply don't cover out-of-network care at all, which means that you'd be responsible for the entire bill—with no cap on out-of-pocket charges—unless it's an emergency situation).

    • Family Deductible

    If your health insurance policy covers your entire family, it likely comes with a family deductible.

    Family deductibles work differently than individual deductibles and come in different types such as an embedded deductible and an aggregate deductible. Learn more in "How Your Family Deductible Works." Note that the Affordable Care Act requires health plans to limit a single individual's total out-of-pocket spending (for in-network care) in a given year, even if that person is covered by a family plan that has a family deductible.

    For 2017, the upper limit is $7,150 in out-of-pocket costs for a single individual, including deductible, copays, and coinsurance. For 2018, it will be $7,350. The deductible that a single individual can be required to pay can be as high as that amount, but no higher.

    When Don’t You Pay the Deductible?

    In the United States, thanks to the Affordable Care Act, you don’t have to pay a deductible when you get preventive care services from an in-network doctor. Things like your yearly screening mammogram, the colonoscopy you get when you turn 50 years old, and your yearly flu shot aren’t subject to the deductible. Your health plan will pay for those preventive services even if you haven’t met your deductible yet.

    Some health plans, particularly some HMOs, don't require a deductible at all. However, these plans usually charge copays for things like doctor visits, prescriptions, emergency room visits, and hospitalizations.

    What Doesn’t Count Toward the Deductible?

    Health care expenses that aren’t a covered benefit of your health plan don’t count toward your health insurance deductible even though you’ve paid for them. For example, if your health insurance doesn’t cover orthotic shoe inserts, then the $400 you paid for a pair of orthotics prescribed by your podiatrist doesn’t count toward your deductible. Similarly, if your health plan doesn't cover out-of-network care, any amount that you pay for out-of-network care will not be counted towards your deductible.

    If your health insurance requires a per-episode deductible as well as an annual deductible, money you pay toward the per-episode deductible might not count toward your annual deductible.

    If you have separate deductibles for in-network care and out-of-network care, the amount you’ve already paid toward your in-network deductible doesn’t count toward your out-of-network deductible. Depending on your health plan’s rules, the amount you’ve paid toward your out-of-network deductible might not count toward your in-network deductible, either. 

    In most health plans, copayments don't count toward your annual deductible, although they do count towards your total out-of-pocket costs for the year. Learn more in "Do Copayments Count Toward Your Health Insurance Deductible?"


    Department of Health and Human Services, Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2018; Amendments to Special Enrollment Periods and the Consumer Operated and Oriented Plan Program. December 22, 2016. Glossary. Benefit Period. Medicare 2016 and 2017 costs at a glance.