More than two-thirds of Americans have private health insurance. If you’re one of them, there’s a good chance you have a deductible, i.e., the amount of money you need to pay out of pocket for medical care before your insurance kicks in.
In 2018, a federal survey found, 87.3 percent of U.S. workers with employer-based coverage had deductibles, compared to less than 50 percent in 2002. Basically, deductible health plans are a lot more common than they used to be. And one type of deductible plan, called a “high-deductible health plan,” or HDHP, has seen especially pronounced growth.
As their name suggests, HDHPs are health plans with very high deductibles. These plans were rare just a decade ago, and now 40 percent of Americans have them, says Nir Menachemi, a professor at Indiana University’s Richard M. Fairbanks School of Public Health. While, in theory, HDHPs are supposed to encourage cost-conscious use of medical services, the proliferation of high deductibles is one reason healthcare has become prohibitively expensive for so many Americans.
Regardless, if you have a deductible — high or low — it’s important to understand how your coverage works. Here’s a starter guide.
How deductible plans are different
With a traditional health plan, you pay fixed monthly premiums so that you can go to the doctor whenever you need to. Then your insurance company picks up the bulk of the tab for the appointments, procedures, treatments and other healthcare services you use.
With a deductible plan, you pay less up front (in the form of premiums) and a much higher share of the costs when you see doctors. Your expenses are more proportional to the amount of care you use. Plans with higher deductibles tend to have lower monthly premiums, and vice versa.
“Proponents [of deductibles] believe that people will use care more judiciously if they have “skin in the game,” meaning that they might think twice about using a potentially low-value service such as an unnecessary test or specialist visit if they have to pay out of pocket,” says Christine Eibner, a senior economist at the RAND Corporation.
In practice, Eibner says, research suggests that people with high deductibles tend to cut back on both necessary and unnecessary healthcare.
You either have an HDHP or a low-deductible plan
Deductible plans fall into two main categories: Traditional, low-deductible plans and HDHPs. There are two main distinctions between them:
Deductible amount: To qualify as an HDHP, a plan must have a deductible of at least $1,400 for an individual or $2,800 for a family. If your deductibles are lower than that, you have a low-deductible plan.
HDHPs also have an out-of-pocket maximum of $6,900 for an individual or $13,800 for family. The out-of-pocket maximum is the most you’ll be required to pay for in-network covered services in a given year. If you reach this amount, your insurance will pay the full cost of all additional covered services (but you’ll still need to pay your monthly premiums). The IRS sets both the deductible minimums and out-of-pocket maximums every year.
HSA eligibility: If you have an HDHP, you can put money into a Health Savings Account to use for medical expenses. This money is tax-exempt (thereby reducing your taxable income) and yours to keep — your HSA account stays with you if you change jobs, and any unused balance rolls over into the following year. HSA accounts can only be paired with HDHPs. FSA accounts are an option if you have a low-deductible plan; these funds are similarly tax-exempt, but lack the other advantages of HSA accounts.
Why would someone choose an HDHP?
Low initial cost is the primary reason to choose an HDHP over a lower-deductible (or zero-deductible) plan. HDHPs must cover in-network, preventive services without imposing any cost on patients — whether or not they’ve met their deductibles. So a young, generally healthy person on a tight budget might decide an HDHP meets their needs. Although, if that person ends up going to the ER or needing unexpected specialty care — or even having a baby — out-of-pocket costs could tip the scale.
HSA eligibility can also be a draw. Some employers sweeten the deal by putting money in employees’ HSA accounts to cover out-of-pocket expenses, says Joel Segel, an assistant professor in the department of health policy and administration at Penn State University. Although, one recent study found that most people with HDHPs don’t even set up their HSA accounts.
In many cases, people choose HDHPs because they’re the cheapest or only options. Rising premium costs have pushed more employers to offer HDHPs in place of traditional coverage. In 2016, 24 percent of employers offered only high-deductible plans, compared to 7 percent in 2012. (Although, this trend may be receding somewhat.) HDHPs have also become the most common type of plan available on the healthcare exchange.
How do you know if a visit, procedure or other service goes toward your deductible?
For preventive care (e.g., annual check-ups, well-woman exams and most immunizations and screening tests):
- Both HDHPs and low-deductible plans are required to cover a defined list of preventive services, whether or not deductibles are met. That means preventive care shouldn’t go toward your deductible or otherwise cost you money.
- HDHPs are allowed — but not required — to cover a few more things on a pre-deductible basis as well, including prescription drugs for chronic diseases. Don’t assume an HDHP has expanded pre-deductible coverage; check first.
- Low-deductible plans have no restrictions on pre-deductible coverage, explains Segel.
For a non-preventive covered service (e.g., emergency care, many diagnostic tests and prescription drugs):
- If you haven’t met your deductible yet, you’ll be responsible for the full cost of covered services (plus any coinsurance or copay), until you meet it.
- If you have met your deductible, you won’t have to pay the full bill — but you may still be responsible for a copay or coinsurance. Meeting your deductible doesn’t automatically make every covered service free. Check to see what your cost-sharing responsibilities are.
- If you’ve met your out-of-pocket maximum, you won’t have to pay anything for covered services. Some HDHPs have deductibles nearly as high as the out-of-pocket maximum.
For any non-covered service (e.g., cosmetic procedures and most experimental treatments), you’ll always have to foot the bill, and it won’t have any bearing on your deductible.
Don’t make any assumptions
In practice, preventive and covered services can be misclassified by mistake, or even become intertwined.
“Even if [a patient] goes in for what they think is a preventive service,” Segel says, “there can be a couple of issues.” For one thing, proper coding matters a lot: “If a woman goes in for a mammogram it has to be coded as preventive not diagnostic. I wouldn’t say this is extremely common but can be good to discuss upfront what the patient is expecting.”
Also, extra services related to preventive care usually aren’t free. If an initial mammogram is abnormal, Segel explains, a woman might need a follow-up ultrasound that wouldn’t be considered preventive.
In some cases, an extra service might be performed during a preventive one. What happens if, midway through a preventive colonoscopy, a doctor identifies and removes a polyp? “If coded as ‘polyp removal,” Menachemi says, “the patient will get a bill. There are no clear guidelines on how to handle these and similar situations.”
These examples shouldn’t discourage anyone from getting preventive care, Segel says. Instead, they should encourage patients to communicate their expectations and concerns. Some insurers also provide online cost tools to help patients estimate expenses. While these tools are mixed in terms of how helpful they are, Segel says they can function as a starting point for a conversation with your doctor.
Bottom line: If you’re seeing a doctor for preventive care, and want to restrict your visit to free services, tell your doctor that.
Just stay in-network
For both preventive care and non-preventive covered services, always confirm that a provider is in-network. “Estimating the financial consequences of out-of-network service use, and understanding the interplay between an out-of-network interaction and the deductible,” Eibner says, is a common pain point for people with deductible plans.
Money spent on out-of-network care may not count toward your deductible. And if it does, Eibner explains, there’s often a higher deductible for out-of-network care.