Deductible In Health Insurance Policy: A Complete Guide

One of the major reasons for taking health insurance is to reduce the financial burden of medical expenses. Insurance can cover more than just medical bills. It can cover several small expenses and even provide peace of mind. To avail of its full protection, you must understand the terms and concepts of health insurance. One such term is "deductible"'. It is a key concept in health insurance and must be understood correctly. This blog aims to explain health insurance deductibles, outlining their operating principles and the importance of deductibles to lower premiums.

What are Deductibles in Health Insurance?

A deductible is a fixed amount you, as a policyholder, must pay as an out-of-pocket cost for medical services before your health insurance begins to cover costs. Think of it as your share of healthcare expenses, with your insurance company stepping in once you reach a certain threshold. Deductibles are typically set on an annual basis, meaning they reset every year. For example, if your deductible is INR 25,000 and you incur medical expenses of INR 75,000, you would pay the first INR 25,000, and your insurance company would cover the remaining INR 50,000.

Types of Deductibles in India

In India, health insurance deductibles come in three main types:

Compulsory Deductibles

This is a fixed amount determined by the insurance company that you must pay at the time of an event or claim. It's non-negotiable and is designed to ensure that policyholders share the costs with insurers. The balance beyond this deductible is covered by your health insurance.

Voluntary Deductibles

Voluntary deductibles are for policyholders who want to pay less for their health insurance premiums by agreeing to a higher deductible. This option is suitable for those who don't need frequent medical services or claims. The higher the voluntary deductible, the lower the premium cost. If you choose this option, you agree to a larger out-of-pocket payment when filing a claim.

Cumulative Deductibles

Cumulative deductibles apply to family floater health insurance plans. In this type, a family is insured under one policy with a shared deductible. The total deductible is cumulative, meaning it's spread among all family members. This option is often more cost-effective for families, as it allows them to cover multiple individuals under a single plan.

How do Deductibles Work in Health Insurance?

A deductible is the amount you need to pay out of pocket before your insurance coverage kicks in. It applies to many types of insurance policies, including health, auto, and home insurance. Here’s how it works:

1. Pay Before Insurance Coverage: For instance, if you have a health insurance policy with a deductible of $1,000, you must pay the first $1,000 of your medical bills. After this amount is met, your insurance company will start covering its share of the costs, according to your policy terms.
2. Annual Deductible: Most deductibles are annual, meaning you need to meet the deductible each year before your insurance starts paying. Once you meet the deductible, your insurer will typically pay for covered expenses according to the policy.
3. Higher Deductible = Lower Premium: Choosing a higher deductible usually means lower monthly premiums, while a lower deductible typically results in higher premiums. This balance allows you to choose coverage that fits your financial situation.
4. Coinsurance and Copays: After meeting the deductible, you may still have to pay a portion of the costs, typically through coinsurance (e.g., 20% of the bill) or copayments (a fixed amount for a service).
5. Different Types of Deductibles: Some policies may have separate deductibles for different services or types of coverage. For example, health insurance might have different deductibles for hospitalization and outpatient services.

Overall, a deductible is a way to share the risk and cost between you and the insurance provider, with the deductible amount being your responsibility before the insurer pays for claims.

Differences Between Deductible vs. Copay in Health Insurance

A deductible is a fixed amount the insured person needs to pay each year for the eligible medical services covered in the health insurance plan before the insurance company begins to share the covered services’ cost. The services can be bills for hospitalization, lab tests, surgery, CAT and MRI scans, medical devices, etc. Deductibles for individual coverage and family coverage are different. Copay is a sum amount that one needs to pay every time they fill a prescription or visit a doctor. Copay covers the portion of the medication or the cost of visiting a doctor. The insured person will be given a health card. For example, if you have a fever and you visit a doctor. The amount you pay at the doctor’s clinic is your Copay. The policyholder will be responsible for any charges that are not covered in the health insurance policy plan.

Factors Determining Deductibles in Health Insurance Premiums

Several factors determine the deductible amount in a health insurance policy:

Age

People of old age can become subject to higher deductibles because, statistically, they have more reasons to seek medical treatment.

Health Status

People who already have pre-existing medical conditions or a history of prior medical issues might get higher deductibles as they are considered people with higher risk.

Coverage Level

Larger coverage policies usually have lower deductibles when compared to limited coverage policies.

Premium Cost

Policies with lower premiums may have higher deductibles, and vice versa.

Policy Type

A type of policy can differ between high-deductible and traditional.

Advantages of Health Insurance Deductibles

Health insurance deductibles offer several advantages:

Lower Premiums

Higher deductibles generally lead to lower premiums. This can make health insurance more affordable for those who don't frequently need medical care.

Cost-Sharing

Deductibles encourage policyholders to share the costs with their insurance companies, reducing the burden on insurers and helping to keep premiums lower.

Reduced Fraud

By requiring policyholders to pay a portion of their medical expenses, deductibles can help reduce fraudulent claims and encourage responsible use of health insurance.

Disadvantages of Deductibles in Health Insurance

Deductibles in health insurance, while offering lower premiums, come with certain disadvantages that policyholders should consider:

1. Higher Out-of-Pocket Costs: A significant disadvantage of having a deductible is the higher amount you need to pay upfront before your insurance coverage kicks in. This can be a financial burden, especially during medical emergencies when the cost of treatment is already high.
2. Risk of Delay in Coverage: Until the deductible is met, you have to bear the full cost of medical expenses. This delay in coverage can create financial strain, particularly if the deductible is high and you need immediate treatment.
3. Possible Avoidance of Medical Care: Some individuals might avoid seeking medical care due to the upfront deductible costs. This can be harmful, especially when early treatment for conditions can prevent more serious complications later.
4. Not Fully Utilized: If you rarely need medical care, you may never meet the deductible. This means you're paying higher premiums for coverage that you don't fully benefit from, which might feel like money wasted.
5. Financial Stress in Emergencies: In case of an unexpected illness or accident, the need to pay a large deductible could add unnecessary financial stress on top of the medical situation, making it difficult for policyholders to afford necessary treatment.

Impact of Deductibles on Health Insurance Coverage

The impact of deductibles on health insurance coverage is significant as it directly affects both the premiums you pay and the amount you will need to pay out-of-pocket before your insurer covers your medical expenses. A higher deductible typically leads to lower monthly premiums, making the policy more affordable. However, this also means that you will need to pay a larger amount upfront when you require medical treatment or file a claim. On the other hand, a lower deductible results in higher premiums but reduces your out-of-pocket expenses when you need to make a claim. Choosing the right deductible is crucial for ensuring that your health insurance provides the desired coverage. While a high deductible might seem like a cost-effective option in terms of premiums, it can be financially burdensome if you encounter unexpected medical expenses. A lower deductible offers more immediate financial protection, but the higher premiums may not be ideal for those on a tight budget. Therefore, the key to understanding the impact of deductibles is to balance between what you can afford to pay monthly and what you can comfortably cover in case of medical emergencies.

Choosing the right deductible in health insurance

Here's a breakdown of how to choose the right deductible in health insurance, explained in paragraph-style bullet points:

1. Age

If you are younger, healthy, and unlikely to make frequent health insurance claims, opting for a higher deductible might be a good choice. This can lower your monthly premium, saving you money in the long term. However, if you are older and prone to illnesses or medical needs, a lower deductible may be more beneficial as it minimizes out-of-pocket costs when filing a claim.

2. Health

If you have a history of medical issues or anticipate needing regular healthcare services, a high deductible may not be the best option. While it can reduce premiums, it also increases your financial responsibility in the event of a claim. In such cases, a lower deductible will help you avoid high upfront costs and ensure that your medical expenses are covered with minimal strain.

3. Family History

If your family has a history of chronic conditions or genetic predispositions to certain health issues, you may be at higher risk of health problems yourself. In this case, choosing a low deductible is a wise move. This ensures you don’t have to pay a significant amount out of pocket before your insurance coverage kicks in, especially in the event of unexpected health emergencies.

4. Policy Premiums

A high deductible can significantly lower your monthly premiums, making it an appealing option if you are looking to reduce your overall health insurance costs. However, this comes with the trade-off of higher out-of-pocket expenses when you need to file a claim. Make sure you’re financially prepared to cover the deductible amount during medical emergencies, or else this may result in financial strain.

5. Family Floater

If you have a family floater policy, you need to be cautious when choosing a deductible. A family floater plan applies the deductible to all members covered under the policy, meaning you must pay the full deductible before the insurer contributes to any medical bills. In this case, opting for a lower deductible can prevent a high financial burden in times of family medical emergencies. Also Read: Coinsurance, Co-pay, and Deductibles: Are They the Same?

Why Should You Opt for an Insurance Deductible?

Opting for an insurance deductible can offer several advantages, especially when it comes to managing costs. One of the primary benefits is the reduction in premium payments. By agreeing to pay a certain amount out-of-pocket before the insurance coverage kicks in, you can significantly lower your monthly or annual premiums, making your policy more affordable. This can be particularly beneficial if you're in good health and don't anticipate frequent medical claims. Additionally, choosing a deductible gives you more control over your healthcare expenses. It may incentivize you to use your insurance more wisely, as you’ll be mindful of paying the deductible for each claim. Over time, the lower premiums can lead to long-term savings, even though you may need to pay the deductible upfront when filing a claim. If you have an emergency fund, it can provide greater flexibility in handling unexpected medical costs without straining your finances. Ultimately, opting for an insurance deductible can be a cost-effective choice, particularly for those who don’t need frequent medical services. Also Read: 5 Things to Know About Health Insurance Deductibles

Conclusion

Deductibles are an important part of health insurance. Understanding their role will let you make the right choices about your healthcare coverage. By choosing health insurance deductibles related to their financial abilities, policyholders can be prepared for medical emergencies.

Frequently Asked Questions

1. Why is a deductible mandatory in health insurance?

Deductibles are mandatory to protect insurance companies from fraudulent claims and to encourage policyholders to use health insurance wisely.

2. Does a deductible reduce the sum insured?

No, a deductible does not reduce the sum insured. It only determines how much you need to pay before your insurance coverage starts.

3. Are deductibles and copays the same thing?

No, they are different. A deductible is a fixed amount you pay before your insurance covers medical services, while a copay is a fee you pay each time you use a specific service.

4. What is the amount of the deductible in the health insurance policies?

The amount of the deductible may differ from one health insurance company to another. A deductible is calculated based on the sum insured the policyholder has opted for. Read up on what is sum insured in health insurance.

5. Is a deductible good or bad for health insurance?

Deductibles are beneficial for reducing premiums but may pose a challenge if frequent medical care is needed, as you must pay the deductible before the insurance covers costs.

6. How is a deductible calculated?

A deductible is the amount you pay out-of-pocket before insurance covers further expenses, typically set as a fixed amount in your policy.

7. How much deduction is allowed for health insurance?

The deduction for health insurance premiums varies by country and policy, typically offering tax benefits under laws like Section 80D in India. *Standard T&C apply Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.