How Do Health Plan Deductibles Work?

Wondering about deductibles? Here is a quick Q&A for understanding one of your company healthcare plan’s most common terms.

First, let’s define a general definition of what a deductible is: It’s the amount you have to pay out-of-pocket for covered healthcare services on an annual basis before your health insurance provider starts paying for the part they cover. A deductible can be zero dollars, a deductible can be $500, and a deductible can be $5000, it just depends on what sort of plan you sign up for during open enrollment.

How are Deductibles Applied?

A real-world example of how deductibles are applied would be if you broke your wrist in February because you fell off a skateboard in your driveway while were showing your teenage son how you used to do it “back in the day.” The trip to the emergency room, treatment, and the subsequent follow-up is $6000 in total, and your deductible was $500, the insurance provider would pay $5500 of that amount, minus any copay amount you were responsible for (we will cover copays/coinsurance in another piece) on a per-treatment basis.

When is a Deductible Considered Met?

Based off of the above scenario, if you did something else unwise in July that required medical treatment, your annual deductible has already been met, so your health insurance provider would then pay for 100% of whatever the covered costs are, minus those copays.

How often is a deducible Calculated?

A deductible is calculated, paid and credited to your account on an annual basis. Copays are always in effect. You can satisfy an annual deductible, and you generally cannot escape a copay requirement.

How much are healthcare deductibles?

Typically, lower-priced healthcare plans for you and your employees have higher deductibles.

Family plans usually have both a separate deductible for each family member in the plan, as well as an aggregate deductible that applies to the whole family. Most private healthcare plans will pay for preventive care treatment (i.e., annual exams or diabetes prevention) before you meet a deductible. All Federal Marketplace healthcare plans pay for preventative care treatment before you meet a deductible; it’s a requirement of Marketplace participation.

Many healthcare plans have a separate deductible schedule for certain related services, like prescription drugs, which is certainly something to consider very carefully if someone is on a treatment plan that requires expensive prescription medication for years, or (potentially) decades.

What about employee-sponsored health plans? Are there still deductibles?

There are generous employers that offer employer-sponsored healthcare plans with no deductible.

Right now, zero-deductible plans are offered by about 17% of employers in the U.S.

What is considered a “good” deductible for a healthcare plan?

A Good deductible depends on many factors, such as the age of the insured, health, appetite for risk, budget, etc. If a covered member has medical issues requiring constant care, they are likely to meet the deducible quickly, with covered expenses kicking in sooner. If, on the other hand, medical care is not assumed to be needed, it may make sense to go with a higher deductible plan, knowing that out-of-pocket expenses may never exceed the deductible.

Choosing a $1000 deductible over a $500 deductible can make a large difference in a monthly healthcare premium. As you might imagine, it makes a difference in the portion the employer pays, too.

There are some data points around this topic. According to KFF (Kaiser Family Foundation), a non-profit organization that compiles and tracks national healthcare issues, the average healthcare plan deductible in 2020 (numbers for 2021 are not available yet) for employer-sponsored plans was $1,644. This is unchanged from the previous year but represents a huge jump from just ten years ago, when the average deductible was $917. That increase outpaces both wages and inflation by over 200% during that time.

How much should I expect to pay for my company’s healthcare premiums?

In term of monthly premiums, on an annual basis, employees are contributing an average of $5,588 to their healthcare plan costs. The average healthcare plan for employees cost $21,342 overall, with employers paying most of that average cost after the employee’s $5,588 contribution.

KFF also notes that the “offer rate” of employee health benefits by employers has remained steady from 2019. In fact, the offer rate has been pretty much unchanged for the past five years, with 56% of employers offering their employees healthcare plans. As in previous years, the larger the company, the more likely they are to offer healthcare plans.

How has COVID affected company insurance plans and costs?

There is, however, an elephant in the room, and the elephant is the COVID-19 pandemic. Those 2020 numbers reflect only a partial year of employers and employees being affected by COVID-19 from both a financial and health perspective.

There will be a whole new set of data for 2021, the first full year of the country suffering through the COVID-19 scourge, waiting to be calculated and analyzed. Many companies suffered severe financial shocks as a result of the pandemic. A small percentage (food delivery and real estate entities, for example) saw their profits spike.

How does a deductible affect the overall healthcare premium?

Changes in financial status of employers may have affected the types of healthcare plans they chose for the employees in 2021, which would also affect deductibles. It’s possible that employees working from home had far less need for healthcare, thereby reducing claims, which might also affect deductibles. It’s also possible that obesity, mental health issues like isolation and anxiety, and postponement of needed checkups and or healthcare will mean increased claims in the future.

At this point, no one knows how the aggregate data from 2021 is going play out, and how the effects of 2021 overall are going to ripple out across the next few years, specific to healthcare costs, and even more specifically, to deductible costs borne by the insured
population.

For more information about Shopping for Health plans for your company, visit the Zenefits Healthcare Marketplace.

This article contains content that was contributed by Brendan Moore of Etna America.