What Is a Health Insurance Deductible?

An amount you owe for covered medical care before your insurance will pay

Man and woman sitting on the floor filling planning health expenses.

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A health insurance deductible is an amount you have to pay toward the cost of your healthcare bills before your insurance company begins to cover your costs.

Deductibles can range from hundreds to thousands of dollars depending on your insurance plan and they typically renew every year.

If your health insurance comes with one or more deductibles, you'll end up paying out of pocket for some services. Once you've paid the full amount of the deductible, your insurance shares or fully pays the costs for your care.

Deductible

An amount you pay for covered healthcare costs before your insurance starts paying for services or medications. Covered healthcare is any expense deemed medically necessary and/or may need to be received through in-network healthcare providers depending on your plan.

How Health Insurance Deductibles Work

Understanding what a deductible is, how it works, and when you have to pay it is part of using health insurance wisely.

The following is an example of expenses with an annual deductible that's $1,000:

In January, you get bronchitis. You see the healthcare provider and get a prescription.

  • Total bill after your insurer's network discount = $200.
  • You pay $200.
  • Your health insurance pays $0.
  • $200 is credited toward your deductible.
  • $800 is remaining before the deductible is met.

In April, you find a lump in your breast. The lump turns out to be non cancerous; you’re healthy.

  • Total bill for doctors, tests, and biopsy = $4,000.
  • You pay $800. (Now you’ve met your $1,000 deductible.)
  • You pay any copayments (set dollar amounts you pay each visit, such as $30 each time you see a healthcare provider) or coinsurance (a percentage of the cost) your health plan requires.
  • Your health insurance pays the rest of the bill.

Coinsurance

A fixed percentage you pay for medical expenses after the deductible is met. For example, if your coinsurance is 80/20, it means that your insurance pays 80% and you pay 20% of the bill after you've met your annual deductible.

In September, you break your arm.

  • Total bill for emergency room visit, doctors, X-ray, and cast = $2,500.
  • You pay copayments and/or coinsurance if you haven't yet met your plan's out-of-pocket maximum. But you do not have to pay anything more toward the deductible since you have already met it.
  • Insurance pays the entire bill minus your copayment and coinsurance.

The out-of-pocket maximum is the highest amount you will be required to pay annually and includes all deductibles, copayments, and coinsurance you pay.

After you meet the out-of-pocket maximum for the year, all charges, including your copays and coinsurance, will also cease; your insurer will cover all of your medically necessary in-network costs for the rest of the year.

Next January, you’ll start the process all over again. (Some plans don't follow the calendar year; in that case, your deductible and out-of-pocket maximum would reset at the end of your plan year or plan period.)

Each year, the health plan sets a new deductible and out-of-pocket maximum. Sometimes it’s the same amount as the year before; sometimes it changes.

According to an analysis by the Kaiser Family Foundation, 83% of workers with employer-sponsored coverage had a yearly deductible in 2020. The average annual deductible for individual coverage was $1,644.

There are some exceptions to annual deductibles. For example, Medicare Part A's deductible for hospital care is based on benefit periods rather than the calendar year, so it's possible to have to pay it more than once in a calendar year.

However, the Medicare Part A benefit period starts when you are hospitalized and provides continuous coverage for the duration of your stay. Even if you are hospitalized in December and remain in the hospital in January, you'll only pay the deductible once.

Recap

Each time you pay toward health care that's a covered benefit of your health insurance plan, it counts toward your deductible. After you've reached the deductible amount, insurance shares costs. If you reach the maximum out-of-pocket for the year, you also no longer pay for copays or coinsurance.

Other Types of Deductibles

So far, this article has covered annual deductibles, which are the most common. However, some health plans have more than one type of deductible. These may include:

  • Prescription deductible: This applies to prescription drugs and is in addition to whatever deductible the plan has for other medical services. After it is met, the coverage usually switches to copays for lower-tier prescriptions, and coinsurance for the more expensive, higher-tier prescriptions.

Drug Tiers

Drug tiers are levels of insurance coverage based on the type of medication. There are typically four tiers:

  • Tier 1 is a low tier of mostly generic drugs that has the lowest costs and lowest copays
  • Tier 2 has brand-name drugs and more expensive generic drugs with mid-level copays
  • Tier 3 is a high tier of expensive brand name drugs with higher copays.
  • Tier 4 has expensive specialty drugs with cost sharing that varies based on the plan.
  • Per-episode deductible: A per-episode deductible happens each time you get a particular type of service. For example, your insurance may require a deductible each time you’re hospitalized.
  • Out-of-network deductible: Some health plans, especially preferred provider organizations (PPOs), 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 doctors.
  • Family deductible: A deductible for all family members covered by a family insurance policy. Family plans can have embedded deductibles, which include both individual and family deductibles, or they can function as an aggregate deductible, which means that insurance doesn't pay until the entire family deductible is met.

Say you have a family plan with an embedded deductible and your individual deductible is $1,500 and the family deductible is $3,000. Once you've paid $1,500 for one family member's medical bills, the insurance will begin to pay for that person's additional bills. After a deductible of $3,000 is reached among all family members, the insurance shares the costs.

If you have a family plan with an aggregate deductible, the insurance wouldn't pay until you reach $3,000 even if this is just for one family member.

Highest Out-Of-Pocket Costs

The Affordable Care Act (ACA) requires health plans to limit a single individual's total out-of-pocket spending (for in-network care), known as the out-of-pocket maximum, in a given year, even if that person is covered by a family plan that has a family deductible.

For 2021, the upper limit is $8,550 in out-of-pocket costs for an individual, including deductible, copays, and coinsurance, and $17,100 for family plans.

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 separate.

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.

Recap

Your health plan may include deductibles for prescription drugs, hospital care, or other types of select services in addition to your yearly deductible. If you are on a family plan, it may include an individual deductible and a family deductible or only the family deductible.

Eligibility

If your employer offers health insurance, they may allow you to pick from multiple plans with varying deductibles, or they may only offer one type of plan with its set deductible.  

If you buy your own health insurance, you'll be able to pick from all of the plans that are offered in your area, and there will typically be numerous deductible levels from which to choose. Even in areas where just a single insurer offers plans in the individual market, there will be plans available from that insurer with varying deductibles. 

If you have options, consider your health, the amount of savings you have (that you'd be willing and able to spend on medical care), and the monthly premiums that you'd have to pay for the various health plans available to you.

A monthly premium is the amount you pay each month to have health insurance. It's separate from your deductible and any other expenses, such as copays and coinsurance.

The conventional wisdom is that higher deductibles work better for healthy people and people without kids, whereas lower deductibles work better for people with health conditions and/or children. But it's not always that simple.

You also have to consider things like how much you'll have to spend to purchase each plan and whether you have enough money saved to pay the deductible if and when you need medical care.

Run the numbers—don't just assume that a lower deductible is always the way to go if you're anticipating a lot of medical costs. In some cases, you might find that a plan with a higher deductible and lower premiums actually ends up being the best solution for your situation.

If you anticipate very high medical costs during the year, the out-of-pocket maximum—in addition to the monthly premiums—is more important than the deductible.

If you're interested in saving money in a health savings account, keep in mind that you'll need to enroll in a high-deductible health plan (HDHP). These are narrowly defined by the IRS; you can't just pick any plan with a high deductible.

And even if you're switching to Medicare, you have options: In almost all areas of the country, Medicare Advantage plans are available with varying deductibles. Medicare Advantage means you select a private insurance company for your Medicare benefits.

If you opt for Original Medicare, which includes Part A hospital insurance and Part B medical insurance, you can buy a Medigap supplement that will cover some or all of the deductible for Medicare Part A.

Coverage

Even if your insurance has a deductible, there are certain preventive care services that will be covered without you having to pay toward the deductible. It's also important to check coverage and know what will not count toward your deductible.

When You Don’t Pay the Deductible

As part of the Affordable Care Act in the United States, you don’t have to pay a deductible for certain preventive care services from an in-network doctor, as long as your health plan isn't grandfathered.

A grandfathered plan is one that was in effect prior to the Affordable Care Act that's allowed to continue without follow all of the ACA's regulations. If your employer has a grandfathered plan, you may have costs for some preventive care.

Preventive Care

Some of the covered preventive care under the ACA includes:

  • Breast cancer mammogram screenings every two years for females 50 and over, and as recommended by a healthcare professional for females age 40 to 49 or those at higher risk for breast cancer
  • Colorectal cancer screenings, such as a colonoscopy once you turn 45
  • Yearly flu shot
  • Routine immunizations as recommended by age
  • Type 2 diabetes screenings for those ages 40 to 70 who are overweight or obese
  • Cholesterol screening for those considered high risk or of certain ages
  • Blood pressure screening
  • Alcohol misuse screening and counseling
  • Depression screening
  • Well-woman visits
  • Screenings for certain sexually transmitted infections (STI), such as chlamydia, gonorrhea, hepatitis B, and syphilis depending on age, sex, and risk
  • STI prevention counseling for adults who are at high risk
  • Screening for HIV

Some health plans, particularly some employer-sponsored health maintenance organizations (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

Healthcare expenses that aren’t a covered benefit of your health plan don’t count toward your 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, or a deductible each time you get a particular type of service, 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 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 likely won't count toward your in-network deductible, either. 

In most health plans, copayments don't count toward your annual deductible, although they do count toward your total out-of-pocket costs for the year.

Summary

Annual deductibles are a part of most health insurance plans, and you will have to pay out of pocket for covered medical expenses, excluding preventive care, until you reach the deductible amount.

A Word From Verywell

No matter which health insurance plan you pick, you need to ask yourself how you'd cover the deductibles if necessary. Even if you're perfectly healthy and have never needed more than preventive care in the past, you never know when a serious injury or illness could strike.

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6 Sources
Verywell Health uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Healthcare.gov. Out-of-pocket maximum/limit.

  2. Kaiser Family Foundation. 2020 employer health benefits survey. Updated October 8, 2020.

  3. Medicare.gov. Medicare costs at a glance.

  4. Healthcare.gov. Out-of-pocket maximum/limit.

  5. Kaiser Family Foundation. Medicare Advantage 2021 spotlight: first look. Updated October 29, 2020.

  6. Healthcare.gov. Preventive health services.