When you have insurance coverage, usually there is an annual out-of-pocket amount that you are expected to pay before your insurance coverage pays for benefits. This annual out-of-pocket expense is called the annual deductible. If an insurance policy does not have an annual deductible, the insurance provider pays in full for all benefit claims without the policyholder having to pay an initial out-of-pocket expense. A policy without an annual deductible will tend to have higher costs than a policy with a deductible.
Annual Deductible Means Lower Insurance Premiums
An annual deductible is a phrase used when referring to insurance coverage and benefit payments. The insurance premium is the amount the policyholder must pay to receive coverage and benefits under the plan. An annual deductible is a way for the insurance provider and policyholder to share the costs of the plan. When a plan has a deductible, it means the policyholder must spend a certain amount of money each year before the insurance policy will kick in. When the policy does not have a deductible, the higher costs incurred by the provider will be passed on to the policyholder in the form of higher premiums.
No Deductible Means Higher Co-payments and Co-Insurance
Co-payments are fixed payments made by the policyholder every time a service is utilized, such as buying prescription medication, after a doctor’s appointment and when visiting the emergency room. With no deductible health insurance, these co-payments will tend to be much higher. In a similar vein, a plan’s co-insurance represents the percentage the policyholder will pay of the plan-covered benefits. A typical co-insurance percentage for a plan with a deductible is about 20 percent for the policyholder. For policies without a deductible, this percentage can be about 40 percent when seeing a network health provider. If the policyholder wishes to see an out-of-network health provider, the co-insurance percentage could be even higher.
Deductible Vs Out of Pocket
The annual deductible and out of pocket expense are very similar expenses. A deductible is the amount you have to spend each year before your insurance starts to cover your medical expenses. So if your deductible is $500, you cannot make an insurance claim until the costs of your medical expenses reaches $501 in any year. The maximum out-of-pocket is the largest amount that you will spend each year after you’ve hit your deductible amount. It includes your co-payments and co-insurance.
Benefits of No Annual Deductible
A policyholder with no annual deductible may be more likely to visit her doctor or seek medical attention since an out-of-pocket expense does not have to be met before insurance benefits kick in. By seeking medical attention sooner rather than later, medical problems can be identified and treated early before they become a serious medical issue.
- Dough Roller: Weighing Health Insurance Costs -- Co-insurance vs. Copay vs. Deductible; June 2011
- Health Quote 360: What Is a Health Insurance Deductible?
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- Travelers. "Home Insurance Deductibles and Limits." Accessed Aug. 2, 2020.
- Allstate. "What Is Zero-Deductible Car Insurance?" Accessed Aug. 2, 2020.
- Hanover Insurance Group. "Understanding Waiver of Deductible Coverage." Accessed Aug. 2, 2020.
- HealthCare.Gov. "Deductible." Accessed Aug. 2, 2020.
- HealthCare.gov. "Deductible." Accessed Aug. 2, 2020.
Eileen Rojas holds a bachelor's and master's degree in accounting from Florida International University. She has more than 10 years of combined experience in auditing, accounting, financial analysis and business writing.