What is a deductible?

A deductible is the amount of money that an individual, as the health insurance policyholder, has to contribute towards your own care each year. For example, if your plan has a $1,000 deductible, it means that you will be responsible for covering your care costs out-of-pocket until you have paid a total of $1,000 toward qualifying care costs.

After you meet your deductible, medical care gets more affordable. Deductibles play a role in both what you pay per year in medical care costs as well as how much your monthly premiums cost you. Choosing a plan with a higher deductible usually lets you access lower monthly premiums and vice-versa. If your workplace offers multiple health insurance plan options, be sure to choose one that you know you can meet each year.

An important note — your deductible resets every year, meaning that you will need to "meet" the deductible by paying its equivalent toward your own medical care costs every calendar year before you start paying your coinsurance percentage. If you fail to meet your deductible in a single year, nothing happens — it resets to $0 after December 31st. Insurance providers are allowed to change your deductible from year to year, so be sure to thoroughly read your insurance documents each year to avoid unpleasant financial surprises.

What are out-of-pocket maximums?

Out-of-pocket maximums are important limitations that put caps on the amount of money you will pay toward your medical care each year. These limitations protect you from going bankrupt if you're diagnosed with a chronic illness that will require ongoing treatment (and ongoing medical bills).

Before we talk about out-of-pocket maximums, we need to talk about coinsurance —AKA what happens after you meet your deductible. Once you've met your deductible, you will be responsible for paying only a percentage of any subsequent medical bills you receive, called your coinsurance percentage. The average coinsurance rates are 19% for primary care and 20% for specialty care. So, for example, if you've met your deductible and you get a bill for $100 with a 20% coinsurance percentage, you will pay 20% of $100 ($20) with the insurance company covering the remaining 80%.

The process repeats itself until you pay the dollar amount of your out-of-pocket maximum toward your own care. After this point, your health insurance company will pay 100% of any future medical bills that you incur. Think of it as the world's worst consolation prize for a year fraught with health issues.

Keep in mind that not every medical expense that you incur throughout the year will count toward your out-of-pocket maximum. Over-the-counter medicine and medical supplies usually won't count toward your maximum unless you have a specialized medical account called a health savings account (HSA). Your monthly premiums, office visit copayments, and any fees that you incur for out-of-network care do not count toward your out-of-pocket maximum.

Do all health insurance plans have a deductible and out-of-pocket maximum?

Yes and no. There is no rule that says your health insurance provider has to charge you a deductible, and it's possible to find policies with $0 deductibles in most states' online healthcare marketplaces during open enrollment. However, there are rules that state that your insurance needs to come with an out-of-pocket maximum, and the government sets limitations on how much your health insurance provider can make you pay toward your care each year. In 2024, the highest out-of-pocket maximum you'll see is $9,450 for an individual and $18,900 for a family. The highest possible deductible that an insurer can charge you is equal to the out-of-pocket maximum of the plan.

Can you walk me through an example of how each of these things actually affect me?

Of course! Imagine that you have a health insurance policy that includes a $2,000 deductible, a 20% coinsurance percentage, and a $5,000 out-of-pocket maximum. You sprain your ankle hiking through the mountains and land in the hospital — bummer. After a visit to the doctor and practice using your new crutches, you're discharged from the hospital with a $3,000 bill. For the sake of simplicity, assume that this event is the first time you've used your insurance this year.

The first $2,000 of your bill will automatically be your responsibility. Of the remaining $1,000, you will need to pay $200 —that's 20% of the portion of your bill that remains unpaid. The remaining $800 will be paid by your health insurance provider. In this example, you have paid $2,200 toward your $5,000 out-of-pocket maximum through the whole ordeal, as care and deductible expenses are both counted toward your maximum.

If it's really not your year and you need to visit the hospital again, you will pay 20% of any medical care costs that you incur — now that you have met your deductible, you don't need to pay it again. Any dollar that you pay in coinsurance will be counted toward your out-of-pocket maximum. Once you pay a total of $5,000 toward your medical care costs, your health insurance company will cover 100% of any medical bills that you receive.

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