What's a deductible?
Shedding light on terms we see often but may not know.
My mom has been putting off her hearing test for over one year, despite having to consistently ask people more frequently to repeat themselves. Signing up for an appointment, finding the “right” doctor, and evaluating whether an appointment is needed in the first place (and what the costs will be) is difficult for almost every person. It wasn’t until a free testing was located in her local grocery store that she finally said “yes” and it was all because she didn’t have to go through the confusing process of doing the research herself.1
Have you ever had any of these questions? Why is my medical bill so expensive? Why don’t I know which health procedures I’ll be paying for beforehand, the same way I know what products I’m buying at Target? Why are the costs of my health treatments so unpredictable? Why am I so confused all the time? It’s not just you. The costs of the U.S. health care system are clouded with secrecy on the back end, between insurance companies, pharmaceutical companies, and health care organizations. It’s difficult to translate to the front end: to patients getting treatments. Health care costs feel like a private matter and aren’t talked about regularly, so it feels like we’re the only ones who don’t have it all figured out.
The good news is, that every skyscraper is built bit by bit, one step at a time. These questions become more clear once we have the foundational skills to understand them, with terms such as coinsurance, deductibles, copay, and premiums. We just need to learn from the ground up. So what is a deductible, copay, or premium? And why do they keep showing up on my bills and insurance cards? Here is all that you need to know.
Premium - Are you a Spotify Premium member? Are you a Netflix member?Are you a New York Times subscriber? In order to be a premium member for any of these services, you have to pay a certain amount of money every month to keep your service. Every month, you’ll see $10 of your bank account bill going to some of these services. In order to be a premium member, you have to pay a premium every month. It’s the same thing with health insurance. Every month, you have to pay a certain fee to keep your “subscription” with that health insurance company. This is what you pay them so that they choose to cover your costs every month. Not as fun as watching Netflix, but at least it’ll keep you protected, safe, and healthy.
Coinsurance - Imagine you had a friend who said you would only have to pay 20% of your food costs, no matter where you ate, and they would cover the rest. So if you ate at Taco Bell, you would pay for 20% of your food costs. But even if you ate at a steakhouse and ate a really lavish meal, you would still pay for 20% of your meal. That could be the difference between $2 and $20, but this is the promise they’ve made. This is the same promise your health insurance company has made, but with your health care costs. Once you’ve met your deductible (described below), your insurance company may only make you pay the coinsurance amount stated on your insurance card (if you have trouble locating it, just comment on this post below). Your coinsurance may say something like 20%, which is the amount you have to pay and they’ll cover the rest. For example, if your check-up was $100, you would pay 20% ($20) and they would pay 80% ($80).
Copayment - Now imagine, your friend has told you that you only need to pay a certain amount of money based on the type of restaurant you go to, and they’ll cover the rest. If you go to a fast food restaurant, you need to pay $5, and they’ll cover the rest. If you eat at any steak house, you need to pay $50, and they’ll always pay the rest. Your insurance again does this kind of split, but with your health care costs. For example, for primary care appointments, you may need to pay $20. For hospital visits, you may need to pay $50.
Deductible - Now, it’s important to note that your insurance company will only begin these copayments and coinsurance amounts once you have met a certain deductible. That means that you have to pay a certain amount at the beginning of the calendar year (January 1st) before your insurance will start paying. For example—continuing on the restaurant theme—your friend may say that you have to pay $500 at restaurants, before they start chipping in. If you eat out at restaurants a lot, it’s a pretty good thing. You might meet the $500 by January or February, and for the rest of the year, you can let your friend take care of most of the payments! However, if you rarely eat out at restaurants, then this may be difficult for you. If you eat out at a restaurant once a month, it may be June or July before you can let the benefits of your friend’s offer start to kick in. It’s the same with health insurance. Your insurance may only start chipping in after you’ve paid off your total deductible (let’s say $2000 in medical costs), which will be good or bad depending on how much you tend to use health care. Your health needs for health care should determine, therefore, how you choose your plans. We’ll cover that too.
Health Resources:
This 5-ish minute video has adorable cartoons navigating the health care system, just like we do (but not as cute). They simplify many terms we hear as we navigate the health care system, like copays, deductibles, and premiums:
Articles:
Bill of the Month by Kaiser News Foundation
This website gives crowdsourced investigations dissecting, analyzing, and explaining medical bills every month in order to shed light on U.S. health care prices. The stories give insight into the wide range of experiences in the health care system.
“California Handed Its Medicaid Drug Program to One Company. Then Came a Corporate Takeover.”
We’ll explore more concepts and terms next time. If you like what you see, feel free to share and subscribe!
When you give up something of low value to you (like time waiting in a grocery store line) to get something that’s of high value to you (like a hearing test), this is called a low opportunity cost.