Health Insurance

Deductibles in Health Insurance

Are you shopping around for health insurance? If so, you may be wondering what deductibles are and how they work. Insurance deductibles are common to health insurance products as they help to keep your premiums affordable.In short, they’re out-of-pocket costs that you must pay before your insurance coverage kicks in and pays out your claims.
Author Bowtie Team
Date 2022-07-21
Updated on 2022-07-21
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What is a deductible?Why do insurance policies have deductibles?How does a deductible work?Deductible vs CopayHow is a deductible determined? Does a deductible affect the cost of insurance?How do I decide what deductible amount to choose?

Deductibles in Health Insurance

Deductible values vary based on the coverage, insurer, and how much you pay in premiums. Plans with lower premiums usually have higher deductibles. Here’s a quick look at why insurance policies have deductibles, an overview of health insurance deductibles, and how health insurance deductibles work.

What is a deductible?

A deductible is the amount you pay each year for most eligible medical services or medications before your health plan begins to share in the cost of covered services. You usually only need to pay the deductible once in a policy year.

The general rule is that if your policy comes with a high deductible, you’ll pay lower premiums every month or year because you’re responsible for more costs before coverage starts. On the other hand, higher premiums usually mean lower deductibles. In these cases, the insurance plan kicks in much quicker. After paying your deductible, you may still have to pay for co-insurance or co-payment.

Why do insurance policies have deductibles?

Deductibles help insurance companies share costs with policyholders when they make claims. But there are two other reasons why companies use deductibles, including moral hazards and financial stability. A moral hazard lies in the risk that a policyholder may not act in good faith. A deductible mitigates that risk because the policyholder is responsible for a portion of the costs. In effect, deductibles serve to align the interests of the insurer and the insured so that both parties seek to mitigate the risk of catastrophic loss.

Additionally, deductibles can help ensure a measure of financial stability on the part of the insurer by reducing the severity of claims. A deductible provides a cushion between any given minimal loss and a truly catastrophic loss. This enables the insurer to respond properly to actual catastrophic losses from policyholders.

How does a deductible work?

A deductible is the initial amount you need to pay (once per policy year) for eligible health care services before your health insurance begins to pay. For example, if your health insurance plan includes an annual deductible of S$3,500, you must pay the first S$3,500 for your insured medical services before your plan starts to pay for your subsequent medical expenses.

Deductible vs Copay

Depending on your health plan, you may have a deductible and copays. A deductible is the amount you pay each year before your health plan begins to share in the cost of covered services. If your plan includes copays, you pay the copay flat fee at the time of service, and the remaining balance is covered by the insurance company. Depending on how your plan works, what you pay in copays may count toward meeting your deductible.

How is a deductible determined?

The amount of deductible varies according to the coverage, insurer, and how much you pay in premiums. Keep in mind, individual health insurance plans’ deductibles vary considerably; some may be as low as S$0.

Does a deductible affect the cost of insurance?

Your deductible typically affects your premium, or the cost you pay for your policy. The higher your deductible, the lower your premium will likely be. The reason is, with a higher deductible, you’re taking greater responsibility for the expenses of a claim. Your insurance provider can help you find the right balance of deductibles and premium costs for your budget.

How do I decide what deductible amount to choose?

Insurers offer a range of deductibles, and you can typically choose the deductible that fits your needs. If you’re mostly healthy and don’t expect to need costly medical services during the year, you may choose a plan that has a higher deductible and lower premium. On the other hand, let’s say you have a medical condition that will require care. Or you have active children who play a lot of sports. A plan with a lower deductible and higher premium that pays for a greater percentage of your medical costs may be better for you.

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The above information was provided by Bowtie Team. It is for reference only. In no event shall Bowtie be liable to you or to any other party for any loss or damage whatsoever or howsoever caused directly or indirectly in connection with your access to or use of the content thereon.

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