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Deductible vs. Out-of-Pocket Expenses: What’s the Difference in Health insurance?

Health care can be confusing, especially if it’s your first time searching for a health care plan on your own or figuring out what you might owe the doctor on your next visit. We’ll break down the difference between two of the most important terms for you.

dedctible vs. out of pocket

Health care can be confusing, especially if it’s your first time searching for a health care plan on your own or figuring out what you might owe the doctor on your next visit. Seeing as the average cost of health care for an adult in the US is about $500 per month, this is something you’ll want to understand to ensure you’re picking the right plan.


What is a deductible in health insurance terms?


If you’re looking for the definition of a deduction in tax terms, check out our tax section here. If you’re wondering what the heck a deductible is in terms of health care, you’ve come to the right place. To put it simply, a health care deductible is the amount of money you have to pay before your health insurance begins covering costs for you.


Example of a health care deductible: If your deductible is $2,000, you have to pay $2,000 in health care costs for visits and services no matter what. After you spend $2,000 (if you ever need to, that is), then your insurance will kick in, and they’ll start covering your costs. You’ll likely have to pay a co-payment (aka “co-pay”) for visits and prescriptions, but it’s minimal compared to paying for everything out-of-pocket.


When you compare health care plans, often the two most prominent figures thrown at you are the premium (i.e. what you pay monthly for the plan) and the deductible. This is because they’re two of the most relevant to you as a person who will use the plan. You need to know how much you’re going to pay per month for your plan and how high your deductible is to determine if it makes sense for you or not.


What is an out-of-pocket expense in health care terms?


Now that you understand what your health care deductible is, let’s move on to out-of-pocket costs. When it comes to medical expenses, out-of-pocket costs are anything you have to pay for upfront (whether you get reimbursed later or not). This includes your deductible, and it also includes coinsurance fees, copayments, prescription fees, etc.


Example of out-of-pocket expenses in health care: If your deductible is $2,000, you’ll have to pay $2,000 out-of-pocket before your health insurance provider pays anything. This is an out-of-pocket cost because, well, you’re paying for it straight out of your pocket.


How are deductibles and out-of-pocket limits similar? They both represent points at which your health care provider starts paying for some of the care. How are they different? The deductible is something you “reach” after using medical services that cost money; your out-of-pocket expenses are what you’re paying to essentially “reach” that limit.


What about out-of-pocket maximum?


When comparing health care plans, you’ll often see out-of-pocket costs expressed as an “out-of-pocket maximum.” These are the same out-of-pocket costs we’ve detailed above, but the maximum means that this is the absolute maximum amount of money you’ll be expected to pay for health care costs out of your own pocket (yes, including doctor’s visits and prescription prices).


You’ll notice that a policy’s deductible is always less than or equal to the out-of-pocket maximum. But, what happens if your out-of-pocket maximum is much more than your deductible?


Let’s say that your deductible is $2,000 but your out-of-pocket maximum is $5,000. Once you reach your deductible of $2,000, you’ll still have to continue paying coinsurance, or copays. Coinsurance is a percentage. Let’s say it’s 25%. You go in for a doctor’s visit and the regular fee (without insurance) is $200 but you’ve reached your deductible, so you now only have to pay 25% of that fee. You’ll pay $50 for the visit.


So, you’re still paying for a cost out of your pocket, right? Right! That is until you meet your out-of-pocket maximum. After meeting your deductible, you’ll have to continue with these out-of-pocket expenses until you reach your maximum. You’re not paying full-price for medical services, but you are still having to pay something.


FAQs about deductible vs. out-of-pocket expenses


You’ve got questions about deductible vs. out-of-pocket expenses, and you’re not alone. Here are some of the most common questions about this aspect of health coverage.


Are deductibles yearly or monthly? Yearly, thankfully! So, if your deductible is $2,000 and you meet that in the first two months of your coverage, for example, you’re good for the rest of the year.


Do you pay your deductible upfront? No, thankfully! You pay as you use different services.


Do you pay a deductible if you never use your health insurance? Nope. It’s only for medical services and prescription costs that you use. For example, if you never visit the doctor this year and don’t need any other health-related services, you don’t pay anything aside from your monthly premium.


So I have to pay for literally everything out of pocket before meeting my deductible? Not everything. Often, preventative care services are free under health plans. But, in terms of doctor’s visits, surgeries, and other significant costs… yeah, you have to pay those out-of-pocket.


How much do you pay after meeting your deductible? That depends on your coinsurance and your out-of-pocket maximum. Check out the definition of coinsurance in our upcoming glossary. Basically, once you reach your out-of-pocket maximum (not your deductible), you stop paying and your health care provider covers the rest.


What’s a normal out-of-pocket maximum? In 2020, no health plan on the Health Insurance Marketplace can have an out-of-pocket maximum of more than $8,150 for an individual or $16,300 for a family.


Getting help with health insurance


Health insurance and health care are confusing. There’s a reason it’s such a headache for so many people (uh, the fact that they didn’t teach us anything about it in school), but it doesn’t have to be that way.

If you’re still having trouble getting the hang of deductibles, premiums, and other health care terms, check out our super easy-to-understand guide here. You’ll learn all about health care providers, insurance, and what to do when you get migraines from being on TikTok all day.

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