The Annual Deductible of a Health Insurance Policy

By definition, the annual deductible of a health insurance plan is the dollar amount you must pay each plan year before the insurance carrier will help you pay for your health care costs.

Now, some health care procedures, like office visits, preventative care and generic drug prescriptions, may have a set co-pay. For anything that has a set co-pay, the amount of that co-pay does not count towards your deductible. Now you may not be happy about that, but you must understand that these co-pay amounts are lower than you would pay without the coverage.

How Does the Annual Deductible Work?

Say your policy has an annual deductible of $1,000. By its definition as noted above, you would be responsible for paying for $1,000 worth of health care expenses (excluding co-pays as mentioned above) for the calendar year. Once you have paid for health care services that total $1,000, the insurance company steps up and contributes to any additional costs as outlined by your policy.

In a typical PPO plan, this usually means that you will have to pay for a percentage of the cost. The insurance company negotiates how much the service will cost with the service provider. You pay your percentage and the insurance company pays the balance.

Annual deductibles are either based on the individual or on the family if more than one person is covered by the policy. The individual deductible applies to each covered person separately. In the case of an individual deductible, each member must meet the annual deductible before the insurance company contributes to the costs of that individual.

Family deductibles apply to all covered members of a family. Depending on the guidelines, meeting the deductible can be shared by two or more family members.

This leads us to one of the most common family deductible formats, the two member max.

The Two Member Max Clause:

If your policy covers more than one person, you may see a footnote on the annual deductible that says "2 member max". Effectively then, two of the people covered on the policy must each meet the deductible before the insurance company will help pay for the health care costs of all covered members.

What is just one person meets the deductible? If one person meets the deductible then the insurance company will contribute to that person's health care costs and not any of the other covered members. And, this person's future expenses do not count towards any other member's deductible. A second member must also meet the deductible before the insurance company will contribute to their health care expenses.

If there are more than two people covered under the policy, once two of the members have reached the deductible, the insurance company will contribute to all members' health care costs.

Don't let your annual deductible take you by surprise. Know what it is and how it is structured.