Okay, today we’re doing math.
Stop grumbling – deductibles are math that matters – to your pocketbook!
But we will try to keep the math to a minimum.
So we’ll start instead with a quick vocabulary lesson: What is a deductible, anyway?
Well, let’s see what the Business Dictionary has to say…
Fixed amount or percentage of an insurance claim that is the responsibility of the insured, and which the insurance company will deduct from the claim payment. Sometimes deductibles are voluntary (to qualify for a lower premium rate) but usually they are imposed by the insurer to avoid paying a large number of small claims. Also called excess. Not to be confused with tax deduction.
An amount the insurer will deduct from the loss before paying up to its policy limits. Most property insurance policies contain a per-occurrence deductible provision that stipulates that the deductible amount specified in the policy declarations will be subtracted from each covered loss in determining the amount of the insured’s loss recovery. Usually, the amount of the deductible is not subtracted from policy limits.
Er, maybe not. Let’s see what Oxford has to say…
- The part of an insurance claim to be paid by the insured
That’s more like it! Thanks, Oxford!
Okay, seriously, a deductible is just the part of your claim OR overall coverage that you pay. But to complicate matters, health insurance deductibles are annual, unlike their car insurance cousins.
So, what does THAT mean?
You only pay your health insurance deductible once per year – but you pay your car deductible once per incident.
Example: Billy has car insurance with a $500 deductible and health insurance with a $5500 deductible. Billy has a bad accident and ends up in the hospital.
Billy’s car isn’t totaled so Billy will pay $500 (his deductible) toward the repairs and the insurance company will pay the rest.
Billy, however, spends a week in the hospital. Billy’s health insurance only pays after deductible (more about this later) so Billy will owe the hospital $5500* and since that meets his deductible, the insurance company will pay the rest.
A few months after Billy gets out of the hospital, Billy has yet another accident.
Billy again pays $500 toward his car repairs – that’s because his car insurance deductible is paid per incident and Billy has had another incident.
But Billy’s health insurance plan has a 20% coinsurance after deductible. Billy pays $200 for the $1000 ER visit and the insurance company pays the rest.
What gives? The health insurance deductible only has to be met once in the coverage year. Billy already met the deductible so now the coinsurance is all he owes. [Note: this example is simplified and we’re assuming that Billy’s Maximum Out Of Pocket has not yet been met – although if Billy doesn’t get some driving lessons, he may meet it yet!]
So the simple answer is that a deductible is just part of your medical costs that you pay.
It doesn’t stay simple so here comes the math.
Every plan is different. Some pay part before deductible and you pay either the coinsurance or the copay for whatever service you use. Some pay nothing before deductible. And a whole lot run in the middle of this road paying some services before and some after deductible.
Let’s look at Mary’s plan. She has a $2500 deductible and straight copays for her medications and doctor office visits. Her emergency coverage is a 20% coinsurance before deductible.
Mary was riding with Billy and also ended up in the hospital. Mary only needed to go to the ER and then some follow up visits to her doctor.
The ER charges $1000 for Mary’s visit. Mary’s deductible has NOT been met but her coinsurance pays before deductible. Mary pays $200 to the ER and the insurance company pays the balance.
When Mary goes to her doctor, she pays her $25 copay. She has four visits so her grand total for office visits is $100.
So Mary pays a total of $300 toward her medical costs after the accident.
Wait, what? How come when poor Billy had to pay his total deductible?
That is the tricky part – Billy’s insurance pays AFTER deductible which means he pays 100% toward his medical services UNTIL his deductible is met. But Mary’s plan has a coinsurance BEFORE deductible – Mary only pays her coinsurance because it is in effect before the deductible is met.
So let’s see how Mary’s deductible works:
A few months later, Mary makes the mistake of getting back in a car with Billy and worse, lets him drive.
This time, Mary stays in the hospital a few days and then follows up with her doctor.
Remember, Mary’s deductible is $2500 – but Mary only pays $2200* to the hospital and the insurance company pays the rest. Why? Because the $300 Mary paid earlier counts toward her deductible – a health insurance deductible is cumulative!
So $300 + $2200 = $2500 Mary’s deductible has been met!
But she still pays $25 to see her doctor. Although the deductible has been met, the Maximum Out of Pocket has not – and Mary’s copay doesn’t change regardless of whether or not the deductible is met. Six office visits later Mary has paid a grand total of $2350 for all her medical services for the second accident.
That’s the basics of deductibles – stay tuned – tomorrow we see how Mary and Billy fare up against the Maximum Out of Pocket!!!! Ooooohhhh, scary!
Not really – but there will be more math – sorry about that.
*Here I simplified a LOT. In both cases I’m pretending that the hospital costs perfectly match the deductible. In the real world Billy would pay the $5500 plus a coinsurance on whatever was left owing and the insurance company would pay the remaining balance – same thing for Mary. But coinsurance is for another post so both Billy and Mary got incredibly lucky and the bills worked out to just the balance of the deductible.