How to Select the Right Health Insurance Deductible

June 22, 2012

The term “high deductible” has become somewhat of a whipping boy in the last few years. People assume that if you have a “high deductible,” your insurance is “no good.” While paying less for something is a universally accepted concept, there are a few, not so obvious, things to consider when trying to select the right deductible. Your deductible will have the greatest impact on the overall cost of your health insurance, that's why it's very important you select one that is right for you.

What is the Deductible?

Before you can decide on a deductible you are going to need to understand how it works. The deductible is a fancy insurance terms that means money you pay first. For example, if you were to select a plan with a $1,000 deductible you would have to pay for the first $1,000 of medical services (not including doctor office and prescription copays) that year before the plan started paying a percentage.

Your deductible Does not Work Alone

While the deductible might be the frontman for your health insurance band, and who gets most of the attention, there are a couple other members you should know about. They are coinsurance limit and out-of-pocket maximum.

Coinsurance Limit

If you opt for a plan that has coinsurance, you will have an additional amount of money to pay out once you meet your deductible. For example, if you pay that $1,000 deductible, but have 20 percent coinsurance, you will be required to pay 20 percent of your medical bills upto the coinsurance limit. Those limits vary from company to company, however expect the coinsurance limit to be at least an additional $2,000 - $3,000.

Out-of-Pocket Maximum

The out-of-pocket maximum is a basic math equation. Simply add up your deductible and coinsurance limit to get your out-of-pocket maximum. This is the number you want to concern yourself with the most, because it's the bottom line number that you would have to pay in the event serious medical treatment is required.

I Want a Low Deductible

That's great, but you might want to read this first. It's entirely possible to buy a plan with the lowest deductible offered, generally $500, and still have to pay $3,000 for a catastrophic medical procedure. In addition to a substantially higher monthly premium for that low deductible. This is a classic example of things are not always what they seem.

I’m Alright With a “High Deductible”

If Family Feud did a survey on “False statements people make without realizing it while talking to their insurance agent about the deductible.” The number one answer would be, “I’m fine with a high deductible plan.”

If you have spent years on an employer’s health insurance plan with a $250, $500 or $750 deductible. Like 99 cents a gallon for gas, those days are long gone. When you tell your insurance agent you want a high deductible they immediately think something north of $3,000 for an individual and $5,000 for a family.

You Don’t Want to Hit Me

No, that’s not the worst advice a baseball hitting coach can give; that is what you want to remember when looking at the different deductible levels. Unless you receive regular treatment for an existing or recovering medical condition, you do not want to come close to hitting your deductible every year. Your deductible should be high enough that you feel a little uncomfortable coming up with that money on short notice, but not so high that you have no chance to pay it.

The Ultimate Goal

The deductible will select itself if you allow it to balance out with your monthly premium. Think of a balanced scale with your deductible on one side and your monthly payment on the other. The two sides should be equal, You do not want a deductible so high that you feel compelled to apply bubble wrap to your body each day before leaving the house, however you also don’t want to have to take out a second mortgage on your house to pay for your health insurance because you overspent on the deductible.

Do you have a deductible that is right for you?