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Understanding Your Health Insurance: Deductibles

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When patients first started appearing in my clinic with insurance plans that carried deductibles, it was invariably a surprise to everyone. The typical scenario went like this. We collected their insurance information in the normal way, looked up their co-payment and collected that at the time of the visit. Three to four weeks later we would get the payment advice back from the insurance company that stated the payment was credited to the patient’s deductible and that we were responsible for billing the patient. We’d bill the patient, who would be surprised and get mad.

Um…awkward. Frustrating as well.

Since that time, people are more educated about having chosen plans containing a deductible, but confusion about how this is applied is common. Once I had to bill a person in February for a deductible. He told me he had already paid his deductible. I was the one who had to tell him, “Yes, but that was last year’s deductible. In the new year it starts all over again.” He didn’t cry, but I’m sure he was close.

In this article, my goal is to help you understand how deductibles work in the typical health insurance plan and what to expect if you find yourself dealing with a deductible.

(Cartoon by HikingArtist)

What is a deductible?
A deductible refers to the amount of money that the insurance company expects you to spend out of your own pocket prior to them paying for medical services. If you have a $1,000 deductible on your plan, you will need to pay for the first $1,000 worth of medical services you receive.

Some plans have both a per-person deductible and a family deductible limit. This means that the amount of deductible you need to pay is capped even if each individual member of your family has not met their individual deductible.

Why is the medical service not covered?
When a medical service is credited to your deductible, it is considered to be covered by your insurance. If you received a medical service that was not covered under your plan, it wouldn’t even count toward your deductible.

How often do I have to pay my deductible?
Most deductible plans reset the deductible each year. This used to be tied to the calendar year and for some plans deductible amounts still reset in January. Many plans now reset at the beginning of the plan year instead.

The plan year is the annual renewal date for the company sponsoring the plan and usually corresponds with the open enrollment period in your company. For instance if you work for Acme Products and they started using a Blue Cross Blue Shield plan in August of 2010, then the plan year would be August through July.

Is there any way I can get around paying my deductible?
No. If a deductible is a part of your plan then paying it is a requirement for participating in the plan. In addition, the providers you see are not allowed to discount or credit you the cost of co-payments and deductibles. That goes against their contracts with the insurance companies. They must bill you and you must pay.

How can I lessen the impact of a deductible on my family budget?
Many companies now offer flexible spending plans or health care savings accounts that allow you to put aside money from your paycheck tax-free, and spend that money on deductibles and other non-covered expenses such as co-payments, glasses and prescriptions.

A word of caution regarding these plans. Often the money you set aside from your paycheck disappears at the end of the year if you don’t use it. Personally, I don’t think that’s fair, but that’s a topic for policymakers. So, if you’re going to use a health savings plan or a flexible spending plan, don’t put in more money than you think you will reasonably use.

Deductible plans continue to evolve

My observation is that insurance plans are becoming increasingly complex, which is causing frustration to both patients and providers. One new “innovative” deductible plan (the one I currently have) charges a deductible only for hospitals that don’t meet their price/quality rubric. Others receive full coverage with a reasonable co-payment. So, if I forget to check about a certain hospital before I go…my loss – literally.

All of us are looking for ways to pay less premium on our health insurance plans without losing any health insurance benefits. There is a limit to which this is plausible and deductible plans usually look like a good deal when you’re reviewing the price in relation to other plan options. If you have a choice of plans, however, you may want to spend some extra time truly considering how much savings you are achieving in reduced premium versus how much you’re likely to need in terms of health services. In some cases you’ll find that the math works out better with a more “expensive” but more full-service plan.

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