What is Deductible in Health Insurance?

Health Insurance Deductibles Explained 

Health insurance plans are a lifesaver during emergency medical situations. However, while going through the medical policy terms, certain terminologies may seem confusing. One such factor is the 'deductible' in a health insurance plan. However, A deductible is one such term you must understand before you opt for it under your mediclaim policy. So, you might think, what is a deductible in health insurance?

Read on to learn everything about the deductible in medical billing.

What is deductible in health insurance? 

A deductible refers to a fixed amount of money you pay out of pocket for covered health expenses before your health insurance company begins covering the costs. It's the share of the healthcare costs before your health insurance coverage begins. You will pay the deductible amount for covered healthcare expenses like doctor visits, hospital stays, or surgeries before your insurance starts paying. 

We have seen: What is deductible in medical insurance? Now, we shall understand the term with an example:

What is deductible in health insurance with an example?

What does deductible mean in health insurance? A deductible is a cost-sharing feature in health insurance policies. It represents the portion of medical expenses that you must pay first, before the insurance company begins to pay its share.

Example: If your policy has a ₹20,000 deductible and your hospital bill is ₹1,00,000, you’ll pay ₹20,000, and the insurer will cover the remaining ₹80,000.

What is Deductible in Top-Up Health Insurance?

In top-up health insurance, a deductible is the predefined amount that you must pay out-of-pocket before the top-up coverage starts. The top-up policy only covers expenses above the deductible amount.

Benefits of Health Insurance Deductibles

Check out the benefits of a health insurance deductible for policyholders and Health insurers as well:

1. For Policyholders

The presence of deductibles in health insurance ensures it is convenient for people with pre-existing conditions to get a health insurance plan. This is because when a policyholder with PED signs up for deductibles, they present a mitigated complication for health insurers, who then become more willing to provide health insurance policies. 
Premiums are mitigated with a deductible for the health insurance plan one gets. Since the complications of policyholders are lowered by a threshold, health insurers are ready to provide affordable health insurance policies with comparatively lower premiums. 

2. For Health Insurers  

Health insurance policies are supposed to give policyholders financial security options. However, having easy accessibility to similar funds made the insurance companies vulnerable to claims being raised for low-value treatments. With a deductible in place, such small-value claims could be easily avoided. 
 

Reason Behind Introducing Deductibles in Health Insurance

Deductibles have been introduced by the health insurance firms to discourage policyholders from filing small medical claims. It further makes the individual responsible and encourages you to register only genuine claims, as you in advance that you will need to pay a portion of the claim amount. Therefore, deductibles reduce the claim frequency and prevent scams or fraudulent claims as well.

Apart from this, the health insurance deductible meaning reflects that an insurance deductible is the value of money a policyholder must settle from themselves before their insurance policy begins covering the promised expenses. The deductible amount varies according to the nature of the medical insurance plan purchased. It can range from several thousand to even a few lakh rupees.

Health insurance companies have introduced medical insurance deductibles in their policies for many reasons. The primary ones include:

• Deductibles help reduce the frequency of small claims.
• This parameter encourages all the policyholders to exhibit responsible use of their health insurance policy.
• Finally, by introducing deductibles, insurance companies successfully share their financial risks with the policy seekers

Overall, the addition of deductibles proves advantageous to both insurers and policyholders in several ways. You can probably better understand this viewpoint after reviewing the following example.

Let's assume you purchase a medical insurance plan with a Rs. 20,000 deductible. During the policy term, you are suddenly diagnosed with dengue and visit a nearby network hospital for treatment. There, the total bill comes to Rs. 80,000. In this scenario, you will need to pay Rs. 20,000 of the total bill out of pocket. Next, your insurer settles the remaining amount according to the terms and conditions of your healthcare plan.

However, you may wonder what happens if your total medical expenses do not cross the agreed-upon deductible of Rs. 20,000. In such instances, your health insurance company will not provide financial assistance, and you will be solely liable to pay the whole amount. 

Therefore, having deductibles in health insurance can give you endless benefits, along with helping to reduce premiums and encourage responsible use of healthcare services.

How Do Deductibles Work in Health Insurance?

Let's understand how deductibles work in health insurance through an example:

For example, you have a mediclaim policy of ₹5 lakh with a deductible amount of ₹ 25,000. So if you file a claim of ₹ 2 lakh, then your insurance company is only liable for 1.75 lakh, i.e., ₹2,00,000- ₹25,000. However, the insurance provider will pay the amount of the claim only after you have deposited ₹ 25,000 into the hospital as a deductible.

Apart from that, your health insurance provider is only liable to pay for medical costs that exceed the deductible amount. In case your claim amount is lower than your deductible amount, your insurer will reject your claim.

Let’s suppose you file a claim of 20,000 under your 5 lakh medical insurance policy with a deductible amount of 25,000. In this case, your insurer will deny your claim, as they are not bound to pay your claims below the deductible limit.

Thus, the above examples give clarity on: What is the deductible amount in health insurance? and how it works. Let's talk about what the factors are that decide the deductible amount.

What Decides the Deductible Amount?

Several factors come together to influence the deductible amount in a health insurance plan. It includes:

•  Age : Typically, older policyholders may be given slightly higher deductibles because they are more prone to avail themselves of medical assistance.
• Premium Cost : If your premium is low, then the deductible amount will rise and vice versa.
• Health Status : If you are diagnosed with any such pre-existing diseases, then you can be subject to greater deductibles. This is because your insurance provider considers similar policyholders to be high-risk individuals.
• Policy Type: The type of policy you prefer obtaining also affects the deductible amount. For instance, if you choose a high-deductible health plan (HDHP) from Star Health, you will have a higher deductible and, consequently, a lower premium on your medical insurance.

Types of Health Insurance Deductibles

A deductible in health insurance has multiple types, which are as follows:

1. Compulsory Deductible: This is an obligatory deductible sum by the insurance provider. You have to pay this first before your insurance cover kicks in for a claim. It is a pre-stated sum or percentage of the claim value, declared ahead of time under your policy.
2. Voluntary Deductible: A voluntary deductible in health insurance refers to a voluntary deductible sum that the policy owner may pay. Taking a high voluntary deductible can reduce your premium payments. This deductible is usually opted for by those who rarely make claims or wish to lower their premium payments.
3. Comprehensive Deductible: This is a deductible that covers all the covered medical costs under the health policy of insurance. A single deductible is applied to all the expenses covered under the policy.
4. Non-Comprehensive Deductible: This deductible is limited to only certain kinds of medical costs or certain insurance coverages under the policy, not the entire policy. For instance, it may be only for prescription drug expenses or selected hospitalizations.
5. Cumulative Deductible: This deductible is generally seen in family floater plans. The amount of deductible accumulates for all the family members who are covered under the policy. After the sum of deductible amount is reached, the insurance coverage starts for all members of the family.
6. Family Deductible: This deductible covers all the family members who are covered under a family medical insurance plan. Once the family deductible is satisfied, the family members' coverage commences. Family plans also come with embedded deductibles, where every individual family member has his or her own deductible, and the family deductible as well.
7. Individual Deductible: This is a simple deductible that applies to the healthcare expenses of an individual alone. The individual has to pay this amount out-of-pocket before the insurance provider begins covering expenses. It is important to comprehend the various forms of deductibles in order to select an appropriate health insurance policy and effectively control your healthcare expenses.

Finally, opting for a medical insurance plan with a deductible increases your financial responsibility for out-of-pocket medical expenses. It encourages careful budgeting to prepare for unexpected medical emergencies before your insurer eventually begins coverage.