Like HowStuffWorks on Facebook!

Deductibles and Co-pays


© Photographer: Showface |
Agency: Dreamstime
You have to meet a new
deductible for each year of
your insurance policy.

A deductible is a fixed amount of money you have to pay before most, if not all, of the policy's benefits can be enjoyed. However, in many health insurance policies, you can use some services, like a visit to the emergency room or a routine doctor's visit, without meeting the deductible first. These services will vary with each type of plan.

A deductible amount is calculated yearly, so you have to meet a new deductible for each year of the policy. Before you meet this amount, you are required to pay for health care. Once you meet this deductible, however, the health insurance benefits kick in, and you're then responsible only for paying monthly premiums and coinsurance if applicable. Deductible amounts vary by plan and can be separated into individual or family deductibles. In general, a family deductible is double an individual deductible, but it can include several members of a family.

A plan with a high deductible will have a low monthly premium, and vice versa. If you are relatively healthy, a smart rule of thumb when buying a policy is to pick a high deductible to lower your monthly premium costs. If all goes well for your health that year, you won't spend much money on health care expenses, and your monthly premium costs will be very low.

But if something catastrophic occurs, your initial expenses will be high. This is because your entire deductible has to be met before your insurance company will cover many of the services you will likely need, including hospital stays.

A deductible is also considered an out-of-pocket expense and can help you meet your out-of-pocket expense maximum. An out-of-pocket expense maximum, or cap, is the amount you need to meet for the insurance company to pay 100 percent of your health expenses. Normally, your deductible and coinsurance can be applied toward this maximum amount. Your co-payments or monthly insurance premiums are not included in this cap.

Now that both the co-payment and the deductible have been defined, let's find out how they vary with different plans.