If you’re familiar with the different kinds of health care plans, you may have heard the terms premium and deductible being thrown around. Some people also use these terms interchangeably, but they are not actually synonyms at all. In this guide to understanding insurance premiums vs deductibles, we explain their meaning and how they work with your plan. You’ll learn how to calculate your monthly premium and annual deductible, as well as how much you can expect to pay for certain services before your health plan kicks in to help you cover the costs.
An insurance premium is your monthly payment to keep your health care plan active and your coverage benefits in place. A deductible, on the other hand, is the amount you pay out of pocket before your health plan starts covering any expenses related to a service or treatment you need. Sometimes called copayment, coinsurance, or out-of-pocket maximum, this amount may be different from one service to another and from one year to the next.
Paying your premium every month keeps your health care plan active, just like paying your car payment keeps your car active on the road. A deductible, on the other hand, is more like an auto insurance deductible – it’s the amount you pay before coverage kicks in and insurance starts to payout (in the case of a health plan, this would be the amount you pay before your insurance kicks in and begins to cover services). If you have both a premium and a deductible, then you’ll pay both before getting any benefits from your health care plan.
An Overview of Medical Insurance
A premium is like your monthly car payment. You must make regular payments to keep your car, just as you must pay your premium to keep your health care plan active. A deductible is an amount you pay for coverage services before your health plan kicks in. In many cases, insurance companies use deductibles as tools to encourage people to be smarter about how they spend their healthcare dollars. For example, if you have an annual or monthly deductible on certain services (like primary physician visits), you may be less likely to see unnecessary doctors because of how much it would cost you. By contrast, if all healthcare costs are covered after meeting a lower out-of-pocket threshold (like $500), there’s no reason not to go for treatments that may not be medically necessary.
How Do Premiums Work?
Premiums, deductibles, coinsurance rates, copays—don’t let insurance jargon throw you. Just use your common sense: pick a plan that fits your budget while meeting your health care needs. There’s no right or wrong answer when picking an insurance plan; it all depends on what best suits your budget and lifestyle. With so many plans to choose from, it can be overwhelming—that’s why comparing options is so important before making any decisions.
How Does a Deductible Work?
First, it’s important to understand how deductibles work—and how they differ from your plan’s monthly premiums. To recap: A health insurance deductible, also known as an out-of-pocket maximum, is simply how much you have to pay before your health insurance plan kicks in. So if you sign up for a $500-per-month plan with a $1,000 deductible (the most common combination), then you will pay for your doctor visits or prescription drugs until you reach that $1,000 threshold. At that point, your insurance will kick in and begin covering expenses at 100 percent.
How do I know what to pick?
An insurance agent or broker can help you decide which option works best for your family’s health care needs. All individual plans in your state must cover 10 essential health benefits: ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder services including behavioral health treatment, prescription drugs, rehabilitative services and devices, laboratory services, preventive and wellness services and chronic disease management, pediatric care including oral and vision care. Check out our full list of coverage for each state here. The marketplace displays sample plans to give you an idea of what each insurance company offers. You can also compare deductibles based on bronze vs silver vs gold. Another way to think about different plans is by taking into account premiums versus deductibles.