Why do all health insurance plans have a deductible?
Health insurance is one of the most complicated products that an individual will ever purchase. It is essential to both your financial and physical well-being that you understand what you’re paying for, and why you’re paying a given amount. There are a few basic features that are universal among health insurance plans.
All health insurance plans include a deductible. This is the amount of money that you will pay before your insurance plan will begin to pay for medical expenses that you have incurred. After you have paid your deductible, your insurance company may pay for the full cost of your additional medical expenses.Your health insurance plan may also require that you pay a
Your health insurance plan may also require that you pay a coinsurance, normally expressed as a percentage, or co-payment, normally expressed as a fixed sum, up to a specified out-of-pocket maximum.
American Indians and Native Alaskans are currently the only group that has the ability to purchase health insurance plans with no deductibles through the government health insurance marketplace. At this point, you may be asking yourself, “Why do I have to pay a deductible at all? Isn’t that why I pay a monthly premium?” To answer this question we need to evaluate a few basic insurance principles.
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Deductibles Lower Insurance Premiums
When choosing a health insurance plan, there are options for plans with a range of deductibles and maximum out-of-pocket expenses. These are typically referred to by different “metal levels”.
Bronze plans typically have the highest deductibles and lowest monthly premiums. Platinum plans tend to offer the most comprehensive coverage and the lowest deductibles. They also come with a premium that is much higher than the bronze, silver, or gold plans.
Why do high-deductible plans offer lower premiums? The answer is quite simple:
By choosing a plan with a higher deductible, you are self-insuring a greater portion of your healthcare costs.
When you do this, you are guaranteeing that your insurance company will pay less for your subsequent medical claims. Deductible selection allows consumers to control the amount of money they will pay for their monthly health insurance premiums.
Deductibles Reduce Frivolous Claims
Health insurance deductibles are slightly different than those that you pay for your auto, home, or life insurance. With health insurance, you can typically receive medical treatment before you ever pay your deductible. It is then up to your healthcare provider to bill both you and your insurance company the appropriate amounts.
If deductibles didn’t exist, people would choose to seek medical attention for every sneeze and sniffle that they experienced. The ability to self-diagnose via the internet has only exacerbated this problem. When individuals pay for these minor medical conditions, they are less likely to seek unnecessary medical attention.
Deductibles Make Consumers Aware of Health Care Costs
One of the less obvious functions of health insurance deductibles is their ability to make consumers aware of health care costs. The use of coinsurance and co-payments has also created greater motivation for patients to strategically choose medical treatments.
Insurance companies have recently begun empowering their consumers by allowing them to shop medical treatments among various health care providers.
In many cases, this allows the consumer to choose a treatment that is below their deductible, which eliminates the need for the patient or insurance company to pay coinsurance costs.
Patients are also less likely to seek medical treatment from a costly emergency room for minor medical issues. Chronic and minor medical conditions are better suited for a primary care physician, which is a much less costly option.
The most important purpose of health insurance deductibles is to reduce the overall cost of health insurance. They accomplish this in a multitude of ways. Empowering consumers and reducing the cost of health care is the goal of many health insurance companies.
As an individual, you have the ability to reduce your monthly premiums by choosing a higher deductible plan. Deductibles allow consumers to customize their health insurance plans to fit their individual needs and health goals. It is important to remember this when choosing the plan that is right for you.
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