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A deductible is an amount you need to pay before your insurance company starts paying. There is a relationship between the premium and deductible – a policy with a lower monthly premium will typically have a higher deductible.
Health insurance has additional out-of-pocket costs, such as coinsurance and copay. After you’ve met your deductible, you start paying coinsurance until you reach your out-of-pocket maximum for the year. Coinsurance is a set percentage of medical expenses for each medical service, while copay is a flat rate you need to pay, regardless of your deductible. The limit is a cap on the benefits the insurance company will pay you in any given year or in your lifetime.
Even after paying regular premiums, you will have out-of-pocket costs when it comes to your insurance. These are deductibles, coinsurance and copay. The latter two are linked to health insurance policies, while the deductible is present in basically all insurance policies.
A deductible is the set amount that you must pay (in addition to the premium) before the insurance company starts paying.
How your deductible works will depend on the type of insurance – some will have a deductible per claim, while others such as health insurance plans will have an annual deductible. For example, if your health plan has a $1,000 deductible and you get a medical service with a bill that is higher than that, you will need to pay $1,000 and your insurance company will pay the remainder of your medical bills. If you have already paid $1000 in medical bills that year, your insurance will pick up the new bill in its entirety.
Your deductible is also essential as it will also determine what your insurance premium is – in other words, what you are paying (usually monthly) for your insurance. A lower deductible can be helpful in many ways, but keep in mind it also means you’ll likely be paying higher premiums. On the other hand, by choosing a policy with a higher deductible, or so-called a High Deductible Health Plan, you can lower your insurance costs by choosing to self-insure instead. Finding the optimal balance between deductible and premium to fit your personal preference and financial circumstances is essential.
You can find your deductible in your insurance policy under the Declaration page section.
After you’ve met your health plan’s deductible, you start paying coinsurance. Coinsurance is a percentage of covered medical expenses you need to pay for each medical service. For example, if you have a plan with a 10% coinsurance, you must pay 10% of each medical bill, while your health insurance will cover 90%. You will continue to pay the coinsurance until you reach your out-of-pocket maximum for the year.
Copay is a flat rate you need to pay for each covered medical services, regardless of your deductible. The insurance company covers the remaining amount. What you pay in a copay may count toward your deductible. For example, if you have a $50 copay for a visit to the doctor, you will need to pay it every time you visit the doctor’s office, including those cases where you already met your deductible.
A limit is a cap on the benefits the insurance company will pay you. The limit can be annual or lifetime. The annual limit can be expressed as a dollar amount of covered services or as the number of medical visits covered. After you reach the annual limit, you must pay all health care costs for the rest of the year.
There may also be a lifetime maximum, which refers to the maximum dollar amount that your insurance company will pay you for non-essential healthcare services during your life. Annual and lifetime limits do not apply to essential health services any longer (since 2010).
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