What is a health insurance deductible and how does it work?

After all, the process is usually jargon-filled and incredibly boring. Plus, there’s an abundance of health insurance options available, making it even more confusing to navigate for the average person.

The truth is, insurance is easier than it might seem from a distance. The trick is familiarizing yourself with three major health insurance terms: deductible, copay, and coinsurance.

Grasping an understanding of these definitions will help demystify any underlying confusion and help you choose the right insurance plan to protect you and your loved ones.

In this WealthRocket article, we’ll provide definitions for and explain the terms deductible, copay, and coinsurance.

An insurance deductible is a sum of money that a policyholder pays upfront before the insurance provider covers additional costs. This payment usually applies to all types of insurance. However, not all insurance policies require a deductible payment.

Most health insurance policies require a deductible. The amount you pay varies depending on the insurance policy. Generally, deductibles can range from a couple of hundred dollars to a couple thousand.

Health insurance policyholders must also pay a monthly payment known as a premium.

A deductible is not always necessary with certain insurance plans.

If the insurance plan has a lower monthly premium, it will typically have a high deductible and vice versa.

Deciding on the best deductible is no simple feat, since no one can see what the future holds. Still, any insurance policy is better than no insurance.

When it comes to health insurance, a copay, also commonly referred to as a copayment, is a fixed amount of money you have to pay each time you visit a doctor or pick up medication. Sometimes, a copayment is required when visiting the emergency room.

Typically, the insurance provider sets a fixed amount as the copay figure, which remains the same no matter how often the insurance holder uses the service. The average cost of a copayment is around $25, though this figure varies.

These out-of-pocket payments depend on the facility that you attend and the type of doctor you see.

For instance, a dermatologist may have a different rate than a family doctor. These are fixed rates and remained the same throughout the terms of your plan.

Coinsurance is the percentage in a health insurance policy that determines the cost-sharing policy between you and a healthcare insurance provider.

This percentage requires the policyholder and insurance provider to split the cost of any health costs, depending on the policy.

With coinsurance, you are still responsible for the deductible and copay, along with the expense ratio.