January 11, 2024

Deductible…seems like a four-letter word for any for anyone who participates in a medical health plan. One simple word can cause serious angst when using benefits. Armed with a few pieces of information, you can conquer the basics of understanding deductibles and reduce this modern-day villain down to a manageable size.

Basics matter

Simply put: a few key elements of your health plan can make it much simpler to digest. Today we are going to focus on three:

  • Deductible
  • Co-pay
  • Out-of-pocket maximum

These fundamentals will help you determine how your plan fits your budget and your lifestyle. So, let’s dive in and get an understanding of deductibles.

Deductible 101

The first major hump of any health plan is the Deductible. It’s front and center to the point that a whole plan type includes it in the name: High Deductible Health Plan. So, what is a deductible?

The technical definition? “A specified amount of money that the insured must pay before an insurance company will pay a claim.” In simple terms, a deductible is the amount of money you will pay before the insurance carrier starts splitting the cost with you.

Deductible Types

There are many types of deductibles, but the two most common are based on when the amount you have contributed resets to zero:

Calendar Year: deductibles that run from January 1 to December 31 each year. They will ‘reset’ to zero at the start of the next calendar year.

Plan Year: deductibles that run off-cycle from the calendar year, for example, February 1 to January 31 or July 1 to June 31. Accordingly, your deductible contributions will reset on the first day of the plan year.

Accrual Type

Knowing your reset date is step one of understanding your deductible. Next, determine how your plan calculates the dollars you contribute. Most medical plan deductibles accrue in two different ways:

  • Embedded
  • Non-embedded

Embedded deductible: this deductible is unique to every individual participant on the plan. As an example, consider a family with two parents and two children. With embedded deductibles, each individual’s medical expenses count towards their own assigned deductible. Once the individual meets their own assigned deductible, they begin splitting cost with the health plan on any future expense.

Non-embedded deductible: this deductible type is an aggregate. That means if we consider the same family of four above, every individual’s medical expenses count towards ONE shared deductible. This is also known as a family deductible. The family deductible must be met before any individual member’s future medical costs are split with the health plan.

Co-pays and Out-of-pocket Maximums

Deductibles may be front and center, but it is also important to understand co-pays and out-of-pocket maximums. Here are the basics:

Co-pay

It really is all in the name. You pay a part of the service or prescription’s costs. Typically, this is a smaller portion of the total price. As you work on understanding co-pays, determine whether they start before or after hitting your deductible.

Note that some co-pays apply no matter how much you have contributed, while others may kick in after meeting your deductible. These are known as post-deductible co-pays. Keep an eye out for those! Typically, all co-pays count toward the next important number – your out-of-pocket maximum.

Out-of-pocket Maximum

Also abbreviated as your out-of-pocket, this is the most you can pay for eligible medical expenses limit that in one given year. Typically, most medical expenses and co-pays will count toward your out-of-pocket maximum. As you consider your medical plan options this might be the most important number to understand.

The out-of-pocket max represents the worst-case scenario for your medical expenses. Once you hit your deductible, you start sharing expenses with the insurance company, but you are still responsible for a portion of costs — up to the out-of-pocket maximum.

 

Hopefully, this quick guide to the basics of your benefits was helpful. Understanding deductibles, co-pays and out-of-pocket maximums will set you up for success as you navigate your benefits. If you have any questions, don’t hesitate to reach out.

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Nick Scott

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Nick Scott

Director of Client Services
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