Out of Pocket Vs. Annual Deductible

Health insurance is designed to keep you from having to pay an extremely large amount of money out of your own pocket when you have medical bills. While health insurance can limit your costs, you still have to chip in when medical bills come up. Both the annual deductible and the out-of-pocket maximum could come into play in this situation.

Annual Deductible

• The annual deductible is the amount of money that you have to pay out of pocket before the insurance company will provide any benefits. For example, you might have a $1,000 annual deductible on your health insurance. If this is the case, you have to pay $1,000 before the insurance company pays anything. This reduces the likelihood that you will use the insurance for frivolous items because you have to pay first before receiving benefits.

Coinsurance

• Besides the deductible, you may also have to pay some other expenses out of your own pocket. Many health insurance policies have a coinsurance percentage that you must pay besides your deductible. For example, with your policy, you might have a coinsurance percentage of 20 percent. This means that the insurance company will pay 80 percent of the bills and you will have to pay 20 percent of any covered expenses. This create a situation in which you and the insurance company are sharing the expenses.

Out-of-Pocket Maximum

• Although you may have to share some of the expenses with your insurance company through a coinsurance percentage, the amount of money that you have to pay is not unlimited, in most cases. With many insurance companies, you have an out-of-pocket maximum amount. For instance, if you have an out-of-pocket maximum of $5,000, once you get to that threshold, the insurance company pays for everything else above that amount. This includes both your deductible and the coinsurance amount.

Impact on Premiums

• The amount of money that you pay out-of-pocket will have an impact on your insurance premiums. If you raise your deductible and your coinsurance percentage, you can also lower your insurance premiums. If you are shopping around for health insurance, consider looking at some options with higher deductibles and out-of-pocket maximums. By doing this, you could potentially get a more affordable premium. If you are generally healthy and do not have to get much medical help, this could save you some money on medical expenses.