The Meaning of Deductible in Insurance
What does deductible mean in an insurance policy? It’s the amount of a claim you are responsible for, before the insurance company will start paying it’s share of costs.
In automobile insurance coverage, you may select a plan with a deductible of $1,000. This would mean that if you have a collision where repairing the damage would cost $5,000, the insurance company would pay $4,000, while you must pick up the rest.
If you had a minor accident with a scratch that would cost $500 to repair, the insurance company would not have to pay anything. You would have to pick up the repair costs yourself.
In health insurance, the deductible is one of three methods the policy can use to share costs. (The others are copay and coinsurance)
Health care costs add up over time rather than on a single incident, so you will usually find the deductible listed as “Calendar Year Deductible” (or CYD). When defined this way, it means your bills start from $0 on January 1 and accumulate through the end of that year.
It would be unfortunate to develop a major health problem and get to the hospital on New Year’s Eve. If you hadn’t met your deductible for the old year yet, you may end up with two deductibles to meet. One for services before midnight, and another for costs in the new calendar year.
You may find a policy that starts counting the deductible from the date your coverage begins and accumulates through the policy year instead of the calendar year, but this is rare.
Also uncommon is a plan that will let you roll over your deductible from the end of the previous year to help in case you do experience the New Year’s Eve scenario.
Sometimes you will find an item in a health policy where the deductible definition is “per admission” or “per occurrence”. The per admission deductible would mean a new deductible applies every time you are admitted to the hospital, while “per occurrence” would likely apply to each Emergency Room visit.
Usually, health insurance policies that offer office visits for a copay do allow you to use this reduced rate before you meet your Calendar Year Deductible.
The higher your deductible is, the lower the risk to the insurance company and the less you have to pay in premium costs for the coverage. On the other hand, lower deductibles mean higher premium costs to you.
So, which is better, a low or high deductible? If the annual premium savings is more than the difference between the deductibles, the higher deductible is the best best.