Whether you’re looking for a new small business health insurance plan or trying to understand your current one better, it’s important to know the various costs associated with the plan.

In addition to premiums and out-of-pocket maximums, health insurance deductibles serve as an important area to consider when choosing a small business health insurance plan.

What are deductibles in health insurance?

Deductibles in health insurance represent the initial amount that policyholders must pay out of pocket before their insurance coverage kicks in to cover eligible medical expenses. Understanding deductibles is essential for individuals navigating health insurance plans, as they directly impact the cost-sharing arrangement between policyholders and insurers for healthcare services.

Definition and types of deductibles

A health insurance deductible is the annual dollar amount you may be required to pay out of pocket before your insurance company begins to make payments for your medical claims. Most people know about the health insurance premium, because this is the price that you pay every month, regardless of whether or not you used health care services; it’s important to know that this cost does not count toward your deductible.

Not all plans require a health insurance deductible. For instance, although there are many exceptions, HMO plans usually do not require a deductible, while the majority of PPO and indemnity plans do. If possible, it is recommended that you choose a health insurance deductible that is no greater than 5 percent of your gross annual income.

Annual vs. Per-incident deductibles

Annual and per-incident deductibles are two distinct structures within health insurance plans, each affecting the cost-sharing responsibilities of policyholders in unique ways. Annual deductibles represent the total amount that a policyholder must pay out of pocket for covered medical expenses within a single policy year before their insurance coverage begins. Once the annual deductible is met, the insurer typically begins to contribute towards covered expenses, with the policyholder responsible for any applicable copayments or coinsurance. On the other hand, per-incident deductibles apply to each separate medical event or treatment episode, requiring the policyholder to meet the deductible for each individual occurrence before insurance coverage applies. This means that policyholders may need to satisfy multiple per-incident deductibles throughout the year, even if they have already met their annual deductible. Understanding the difference between these deductible structures is crucial for policyholders to anticipate and manage their healthcare expenses effectively under different health insurance plans.

Health insurance deductibles in a small business context

Choosing a health insurance deductible for your small business health insurance plan will often depend on the anticipated health care needs of your employees. For example, an employee with frequent medical costs from prescription drugs and office visits might select a plan with a low health insurance deductible, since they would be able to meet the deductible fairly quickly. He or she would then be able to split covered medical costs with the health insurance company through co-insurance for the rest of the year.

Conversely, a relatively healthy employee with minimal medical costs might choose a plan with a high health insurance deductible and low monthly premiums. For instance, the employee might not meet a $1000 health insurance deductible if he or she only spends a few hundred dollars annually on medical expenses, so this high-deductible plan would allow them to save money though lower premiums.

Determining your health insurance deductible

The cost of your health insurance deductible will depend on your small business health insurance plan. A convenient way to think about annual health insurance deductibles for your small business is to look at them in relation to your monthly premiums.

• If you want spend less on health insurance upfront, then choosing a plan with a higher annual health insurance deductible can allow you to keep your monthly premiums lower.
• If you don’t mind paying more upfront and less when using medical services, then selecting a plan with a lower annual deductible may be a good choice for you and your employees.
• Keep in mind that you should look for an affordable health insurance deductible in case of medical emergencies.

Another similar yet useful way to look at health insurance deductibles is to review the metal levels of each plan.

• Small business health insurance plans with higher metal levels, like gold plans, usually have a lower annual health insurance deductible but higher monthly premiums.
• Small business health insurance plans with lower metal levels, such as bronze plans, usually have lower monthly premiums but higher annual health insurance deductibles.

How deductibles affect premiums and out-of-pocket costs

Deductibles play a significant role in shaping other health insurance costs, including premiums and out-of-pocket expenses, and understanding this relationship is crucial for individuals selecting insurance plans. Typically, insurance plans with higher deductibles tend to have lower premiums, as policyholders assume more financial responsibility upfront before insurance coverage kicks in. This trade-off between deductibles and premiums allows individuals to tailor their insurance plans based on their budget and risk tolerance. However, it’s essential to recognize that while lower premiums may result in more affordable monthly payments, they also mean higher out-of-pocket costs when medical care is needed. Policyholders with higher deductibles may face substantial expenses before reaching their deductible threshold and accessing full insurance coverage. Conversely, plans with lower deductibles often have higher premiums but require lower out-of-pocket costs for covered services. Balancing deductibles, premiums, and out-of-pocket costs is essential for individuals to find an insurance plan that aligns with their financial needs and healthcare priorities. 

Calculating total cost of health insurance with deductibles

Health insurance costs are calculated in relation to deductibles through a combination of premiums and out-of-pocket expenses. Premiums are the fixed monthly or annual payments that policyholders make to maintain their health insurance coverage. These premiums contribute towards the overall cost of the insurance plan and typically remain consistent regardless of the level of deductibles. However, deductibles impact the out-of-pocket expenses that policyholders must pay before their insurance coverage begins. When considering the total cost of health insurance, individuals should factor in both premiums and potential out-of-pocket costs associated with meeting the deductible. This includes expenses for medical services, prescriptions, and other covered treatments that are not fully covered by insurance until the deductible is met. Additionally, individuals should consider any copayments or coinsurance required for covered services after the deductible is satisfied. By understanding how deductibles affect out-of-pocket expenses, individuals can make informed decisions about their health insurance coverage based on their budget and healthcare needs.

Choosing the right deductible for your small business health plan

Choosing the right deductible for your small business health plan is a crucial decision that can significantly impact both your company’s finances and your employees’ healthcare costs. With a myriad of options available, selecting a plan with the appropriate deductible requires careful consideration of various factors, including your budget, the health needs of your workforce, and your risk tolerance. Understanding how deductibles work and their relationship to premiums and out-of-pocket expenses is essential for making an informed choice that strikes the right balance between affordability and comprehensive coverage. Let’s delve into key considerations to help you navigate this decision-making process and find the ideal health insurance plan for your small business needs.

Deductibles may be more affordable through a group plan

Group coverage for small businesses can often be less expensive per person than an individual insurance plan. This is usually due to the larger risk pool advantage found in group coverage, since risks are spread across all members of a medical plan.

According to an eHealth report on small business health insurance, the national average small business plan deductible was 31 percent lower than the national average deductible for plans in the individual market in 2018. Average plan prices in 2018 were as follows:

• Deductible for small business coverage: $3,140
• Deductible for individual coverage: $4,578

Enrolling in a group plan for your small business health insurance can cover everyone together under one policy and can also help you and your employees save money with lower annual costs for health insurance deductibles.

Health insurance deductibles in perspective

Understanding health insurance deductibles can help you choose the right small business health insurance plan for you and your employees. In addition to health insurance deductibles, you should also review monthly premiums and out-of-pocket maximums when deciding on a group plan. Overall, selecting a group plan with lower annual deductibles may be able to save money for your small business.

Visiting eHealth’s website today or speaking with eHealth’s licensed health insurance agents can help you find the best small business health insurance plan based on your budget and coverage preferences.

Always consult your tax and legal advisors to understand your specific tax and compliance situation. This article is for general information and not intended to provide any tax or legal advice.