Health Insurance Deductible: What It Is and How It Works

A health insurance deductible is the amount of money that an insured person must pay out of pocket every year for eligible healthcare services before the insurance plan begins to cover the costs. The size of the deductible varies depending on the health insurance plan. As a rule, the higher the monthly premium, the lower the deductible.

Other costs associated with health insurance include:

  • The monthly health insurance premium. This is what you pay to retain the coverage.
  • Copayments. These are fixed amounts the insured person must pay toward the cost of particular services. They do not count toward the deductible.
  • Coinsurance payments. These reflect the insured person’s responsibility for a set percentage of the cost of some services, above and beyond the deductible.

The health insurance marketplace established by the Affordable Care Act (ACA) places a limit on out-of-pocket costs that insured individuals or families must pay annually. Plans sold elsewhere may not have the same limits, or any.

Deductibles, copayments, and coinsurance costs count toward the out-of-pocket maximum under the ACA. Premiums, out-of-network charges, spending on services that aren’t covered, and provider charges above a pre-established limit are excluded.


  • Your health insurance deductible is the amount you must pay for covered services each year before your insurance plan starts covering costs.
  • High-deductible health plans tend to have lower premiums than policies with low deductibles.
  • The deductible is separate from the copay, the flat amount the insured may have to pay toward the cost of some covered services.
  • There also may be coinsurance costs, reflecting a fixed percentage of the bill for some services that may be the responsibility of the insured.
  • Those with high-deductible health plans can offset some of the costs by establishing a tax-advantaged health savings account (HSA).
  • People with lower incomes may be eligible for federally subsidized healthcare available under the Affordable Care Act.

How Health Insurance Deductibles Work

When you buy health insurance, you pay a set monthly premium for one year of coverage. At the end of the year, you may continue your coverage, although the insurer may revise the premium amount at that time.

The annual deductible is separate from the monthly premium and represents the payment you must make for covered services before your insurer starts picking up the tab. For example, if a plan has a $1,000 annual deductible and a covered patient needs a procedure that costs $3,000, the patient would need to pay the $1,000 deductible, while the insurance company would pay the remaining $2,000 of the cost, assuming the procedure was covered under that health plan.

Some plans may exclude the deductible from the annual out-of-pocket maximum. Make sure to check whether that’s the case before signing up.

After the deductible is paid and provided you continue to pay the premiums, your medical costs are covered, minus any copayment and coinsurance charges. The deductible would need to be paid again the next year before the insurance plan starts covering costs if the policy is renewed.

How Deductibles Differ

Your plan might have more than one deductible. If you have individual coverage, you may pay one deductible for most of your healthcare expenses and another toward the cost of prescription drugs. If you have family coverage, you may pay individual deductibles for each person covered under the plan alongside a family deductible for the policy.

Many insurance plans cover certain preventive care services without requiring a deductible or copay. For example, routine mammograms for women aged 40 and over are typically covered in full with no deductible or copay. This is a federal requirement for new plans.

Insurance companies charge deductibles in part as a cost-saving measure. The up-front cost of care before the deductible is met encourages the insured to avoid unnecessary provider visits and medical procedures, and allows those who expect to remain healthy to choose a high-deductible plan with a lower monthly premium.

Copayments and Coinsurance

Once you pay the annual deductible, your health insurance plan will start picking up your covered medical costs, with a couple of exceptions.

Copayments are one. Your copay is a set dollar amount that you may pay for a doctor’s or urgent care visit, a prescription, or a medical service. Once you pay off your deductible, you’ll still have to cover the copayments.

Copayments are not the same as coinsurance, which is a fixed percentage of a bill for a medical service that you may have to cover after you’ve met your deductible under your policy’s terms.

Examples of Copayments and Coinsurance

Here are two examples:

  • A copayment of $30 may be due when you have an office visit with a doctor.
  • A coinsurance share of 10% may be due if you are treated in an emergency room.

For ACA marketplace plans, the amounts you pay for your deductible, copayments, and coinsurance all count toward your annual out-of-pocket maximum, the most you can be required to pay in a year for covered services.

The out-of-pocket maximum for an ACA plan was set at $9,100 for an individual and $18,200 for family coverage for 2023, up from $8,700 and $17,400, respectively, in 2022.

Average Deductibles and High-Deductible Health Plans

A high-deductible health plan is defined in the U.S. tax code for 2022 as any plan with an annual deductible of at least $1,400 for an individual or $2,800 for a family. For 2023, these deductible numbers are $1,500 and $3,000, respectively. Such plans, along with a separate category of high-deductible health plans with health reimbursement arrangements, covered 28% of U.S. workers in 2021, according to the Kaiser Family Foundation’s annual survey.

High-deductible plans with a savings option had an average deductible of $2,424 and an average annual premium of $7,016 for single coverage, according to Kaiser. Plans other than high-deductible ones had an average annual deductible of $1,294 and an average annual premium of $8,023 for single coverage.

If you’re shopping for a health insurance plan, each plan you’re offered will include a full list of that plan’s copayments and coinsurance. Most insurers will offer high-, medium-, and low-deductible plans, each with its own details.

Comparing Health Insurance Deductibles

As you can see, there’s a substantial difference in the monthly premiums of high-deductible versus low deductible healthcare plans. However, the real out-of-pocket costs of any plan include the premium, the deductible, and copayments along with coinsurance.

Your out-of-pocket expenses under a health plan will depend on your health profile.

Personal Considerations

If you’re in good health and have no health issues, it’s possible that you may not even spend enough to meet your plan’s deductible for the year. A young and healthy person who rarely goes to a doctor might save money with a high-deductible plan with high coinsurance costs.

Conversely, someone with a pregnancy or a chronic condition requiring regular treatment might be better off with a more comprehensive plan to minimize deductible and coinsurance costs.

If you’re married, you may also need to compare the deductible for your spouse’s health insurance coverage and the additional cost of being added to the spouse’s insurance plan. Depending on how the plan is structured, it may be more affordable to go from single to family coverage than to obtain single coverage separately.

If you’re getting health insurance through the federal marketplace or any of the state marketplaces, you can compare the coverage of four distinct tiers to determine which one is best for you.

Health Insurance Deductibles and Marketplace Plans

The plans offered directly by insurers are similar to those that are available in the health insurance marketplaces that the federal government and many states have made available under the Affordable Care Act. The marketplaces offer four tiers of insurance plans:

  • The Bronze plan, with the lowest monthly premium, covers an average of 60% of health costs.
  • The Silver plan has a higher monthly premium and covers an average of 70% of health costs.
  • The Gold plan has a higher monthly premium than the Silver plan but covers 80% of health costs.
  • The Platinum plan has the highest monthly premium and the highest level of coverage at 90%.

Notably, there’s also a lowest-cost catastrophic plan with a deductible set at the ACA out-of-pocket maximum—$9,100 in 2023—for people under age 30, or those who have a hardship or affordability exemption. While the deductible is high, it does not apply to three primary care visits per year.

Comparing Costs

When comparing health insurance plans, the important factors are the amount of the deductible, the coverage provided in the plan, and how often you need medical care.

Pricing for all ACA plans depends on your age, whether you smoke, and where you live. The state in which you live determines the companies that offer to insure you and the price you’ll pay.

At the Bronze level, you would typically have the lowest monthly premium, but you’d pay the highest deductible. At the other end of the spectrum, a Platinum plan would offer the most coverage for healthcare plus the lowest deductible, at a significantly higher cost.

The Platinum plan could be a good choice if you have high costs for routine care, specialists, or prescription drugs. The trade-off is that the plan will have an expensive monthly premium.

Those who buy their insurance through the federal marketplace are automatically evaluated for subsidy eligibility based on income. You must enroll at the Silver level or higher, but if a cost-sharing reduction is available, this will reduce the amount you pay for coverage.

What Are the Advantages of High-Deductible Health Plans?

High-deductible health plans charge lower premiums as a trade-off for the plan participant’s higher out-of-pocket costs. They also enable the policyholder to open a tax-advantaged health savings account.

Must the Deductible Always Be Paid Before the Insurer Covers Healthcare Costs?

There are exceptions to the general rule that the deductible must be paid before costs are covered. For example, the catastrophic health insurance plan offered under the ACA covers at least three primary care visits per year without a deductible.

Does Medicare Coverage Come With Deductibles?

Yes. The Medicare Part A deductible for inpatient hospital stays is $1,600 for 2023, up from $1,556 in 2022. Beneficiaries staying in a hospital for more than 60 days per year face additional costs. The deductible for outpatient services under Medicare Part B is $226 for 2023, down from $233 in 2022. Deductibles for the Medicare Part D prescription drug plans vary but are limited to no more than $505 for 2023, up from $480 in 2022.

Do You Pay a Deductible With a Medicare Advantage Plan?

Yes. The Medicare Advantage Plan is one of two alternatives for Medicare recipients who want to supplement the coverage they receive. Both are available through private insurers.

Medicare Advantage Plan

A Medicare Advantage Plan replaces your Medicare card with a private insurer’s Medicare Advantage Plan card. That insurer manages your Part A, Part B, and (optional) Part D services and costs.

Its coverage comes with its own supplemental premiums (expected to cost $18 monthly on average in 2023), copayments, and coinsurance costs.

Medicare Advantage plans offer additional coverage and additional services at an additional cost. The costs vary widely, as do the options for coverage.

Medigap Plan

Medicare Supplement Insurance, known as Medigap, covers some of the deductibles, coinsurance, and copayments due for Medicare services.

For example, you can choose a Medigap plan that has a low monthly premium but requires you to pick up the deductible every year. But if you’re hospitalized for more than 60 days, it will pick up your share of the costs.

The Bottom Line

If you’re choosing a healthcare plan and want to compare costs, you need to do some math: monthly premium plus the annual deductible plus copays and coinsurance equals your total annual out-of-pocket costs under a given plan.

Of course, you probably can’t estimate how many doctor’s visits you will need in the coming year, and you don’t know whether you will face a severe illness or injury.

So go with what you know. If you’re young and generally healthy, you might take a high-deductible plan. Be prepared to foot much of the bill if you become ill.

If you have a recurring health problem requiring specialists’ routine treatment, consider the low deductible plan. You’ll pay a higher premium but should get a break on the deductible, copayments, and coinsurance costs.

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