Deductibles

The use of deductibles by third-party payers, including insurance companies, health maintenance organizations (HMOs), and other managed care organizations, is a method of minimizing financial risk to the payer and sharing responsibility of payment with the patient. Deductibles require the patient to pay a predefined amount before insurance coverage begins. For instance, if the total cost of an inpatient stay at a health care institution is $500 and the patient is required to pay a $200 deductible per year, the insurance covers the remaining $300. The specified amount of the deductible and coverage terms varies, depending on the type of health insurance contract. In most catastrophic or major medical insurance contracts, deductibles are used as a standard to eliminate routine medical care costs.

Insurers benefit by placing a portion of the financial burden on the patient, reducing expenses to the insurer. Another reason insurers use deductibles is to reduce use of medical care. By being required to pay a portion of the costs each time medical care is sought out, patients are less inclined to overuse medical care. Deductibles are typically established at reasonable rates, affordable to the average person, but are designed to encourage people to consider whether the care is necessary. Insurers benefit by requiring patients to pay deductibles, but if the patient does not seek care until the illness becomes severe, higher costs may result in the long run.