In American health insurance, the term "deductible" has two related but distinct meanings:
- Deductible (noun): The deductible is a specific amount of money that a policyholder must pay out-of-pocket for covered medical expenses before the insurance company starts paying for certain benefits. In other words, it's the initial amount the insured individual is responsible for before the insurance kicks in. Typically, health insurance plans have an annual deductible, which means it resets each year. Once the deductible is met for the year, the insurance company will start covering the agreed-upon portion of medical expenses.
For example, if you have a health insurance plan with a $1,000 deductible and you incur $2,500 in covered medical expenses during the year, you would be responsible for paying the first $1,000, and then the insurance company would start covering a portion of the remaining expenses as per the plan's terms.
- Deductible (adjective): When used as an adjective, "deductible" refers to expenses that can be subtracted or taken off from the taxable income. For instance, if you have a health savings account (HSA) or a flexible spending account (FSA), the contributions you make to these accounts are typically tax-deductible. This means the amount you contribute is excluded from your taxable income, which can result in potential tax savings.
It's essential to understand both meanings of the term "deductible" when dealing with health insurance to ensure you know how much you need to pay before insurance coverage applies and to take advantage of any tax benefits related to health savings accounts or flexible spending accounts.