What Is a Health Insurance Deductible?

Terry Masters

A health insurance deductible is an amount of money that a person must pay towards his health care bills in a single year before an insurance company will start paying the remainder of his health care costs under an insurance policy. Including a deductible in an insurance policy will typically lower the monthly premium payments. Usually, an insurance company offers a range of deductibles, where the highest deductibles result in the lowest monthly premiums.

A deductible is how much a policyholder must pay before his health insurance coverage kicks in.
A deductible is how much a policyholder must pay before his health insurance coverage kicks in.

Insurance companies price policies according to their assessment of the risk that the company will have to pay a claim under the policy. The more likely it is that an insurance company will have to pay a claim, the more expensive the policy will be for the insured. This ensures that the company makes a profit, even if it has to payout occasionally. Insurance policies also provide coverage on an annual basis. The total cost of the policy is typically broken up into equal periodic premium payments over the course of the year.

A health insurance claim form.
A health insurance claim form.

Although many people think insurance is a standardized commodity, it is really a negotiated contract. The company presents the person seeking a policy with options that affect coverage and the cost of the policy. One of the key options for health insurance policies is whether to include a deductible. A health insurance deductible lowers the cost of the policy, because the insured party agrees not to make a policy claim until after he has paid a certain amount of health care costs out of his own pocket. There is less of a risk of a payout for the insurance company, since it is possible that a person will not incur enough health care costs in a year to exceed the deductible requirement.

Most companies will offer multiple deductible options. Lower deductibles will marginally decrease the cost of the policy, while higher deductibles can make a significant dent in the overall cost. People who choose to include a health insurance deductible in their policy typically expect not to incur substantial health care costs during the year.

For example, a young person who is in good health may not anticipate needing to go to the doctor at all during the year. He can take a high deductible, because he does not expect it to be a factor. Instead, he enjoys the lower monthly premium that a high deductible offers. This scenario only becomes a problem for him in the unlikely event that he develops a serious medical condition. In that case, he would have to be prepared to pay the health insurance deductible before he could access his policy benefits.

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