Deductible

If you're a small business owner looking into health benefits for your team, you’ve probably come across the term "deductible" more times than you can count. But what exactly is a deductible, and how does it impact the cost of health insurance for you and your employees? Don't worry—I'm here to break it down in a way that's easy to understand, even if you’re new to health insurance lingo. Let's dive in.

What is a Deductible?

A deductible is the amount an employee has to pay out of their own pocket for healthcare services before their health insurance starts covering the costs. Think of it as a threshold—once they reach it, their insurance kicks in to pay for eligible medical expenses.

How Does a Deductible Work?

Here's how it works:

• If an employee's deductible is $1,500, they must pay for the first $1,500 of their medical expenses before the insurance company starts contributing.
• After meeting the deductible, the insurance typically covers a portion of the costs, while the employee continues to pay a smaller share known as coinsurance (e.g., 20%).

Types of Deductibles

There are generally two types of deductibles to be aware of:

1. Individual Deductible: Applies to a single person on the plan. Once they meet their individual deductible, insurance kicks in for that person.
2. Family Deductible: The total amount a family needs to pay out-of-pocket before the insurance covers the rest. This could be met by one person or a combination of expenses from multiple family members.

Why Do Deductibles Matter for Small Businesses?

For small businesses, understanding deductibles is crucial because they directly impact:

• Premium Costs: Plans with higher deductibles usually have lower monthly premiums, which can be more affordable for small businesses.
• Employee Satisfaction: Employees may prefer lower deductibles to reduce out-of-pocket expenses, but that often means higher premiums. It’s about finding a balance that works for both the business and employees.

Balancing Costs and Coverage

Choosing the right deductible can help small businesses:

• Control Costs: Higher deductibles reduce premium costs, helping businesses manage expenses.
• Offer Flexibility: With options like ICHRA (Individual Coverage Health Reimbursement Arrangement), you can set a budget and let employees choose the plan that works best for them.

How Does a Deductible Compare to Other Costs?

It’s easy to confuse a deductible with other out-of-pocket costs, but they’re different. Here’s how:

• Premium: The monthly fee paid to maintain health insurance coverage.
• Copay: A fixed amount paid for specific services, like $25 for a doctor's visit, regardless of whether the deductible is met.
• Coinsurance: A percentage of the cost shared between the employee and the insurance company after meeting the deductible.

Examples to Make It Crystal Clear

Let's look at a quick example to clarify how a deductible works:

• Example: Emily has a $1,000 deductible and incurs $2,500 in medical expenses.
  • She pays the first $1,000 out of pocket.
  • Her insurance covers 80% of the remaining $1,500, and she pays the other 20% as coinsurance.
  • In total, Emily pays $1,300 ($1,000 deductible + $300 coinsurance).

Choosing the Right Deductible for Your Small Business

When selecting health benefits for your team, consider:

• Budget: How much can your business afford to contribute each month?
• Employee Needs: Are your employees generally healthy or do they have ongoing medical needs?
• Flexibility with ICHRA: With SimplyHRA's ICHRA plans, you can set your budget while allowing employees to choose plans that fit their needs, including different deductible options.

SimplyHRA Makes Health Benefits Easy

Offering health benefits doesn’t have to be complicated or expensive. At SimplyHRA, we help small businesses provide affordable, flexible health benefits without the headache of managing a group plan. Our ICHRA solution lets you control costs, stay compliant, and give your employees the freedom to choose the right plan for their needs.

Want to learn more? Schedule a demo or Sign up now to see how we make health benefits simple and affordable for small businesses.

Frequently Asked Questions (FAQs) about Deductibles:

Q: Can I offer different deductible options to my employees?

A: Yes, with an Individual Coverage Health Reimbursement Arrangement (ICHRA), you can set a budget and let your employees choose from a variety of health insurance plans with different deductible options. This gives employees the flexibility to select a plan that fits their financial and healthcare needs while helping you control costs.

Q: Are deductibles the same for all types of healthcare services?

A: No, some health insurance plans have separate deductibles for specific services like prescription drugs or emergency care. It’s important to review the plan details to understand which services are subject to the general deductible and which have separate cost-sharing requirements.

Q: Do all health insurance plans have a deductible?

A: No, not all plans have a deductible. Some health maintenance organization (HMO) plans or plans with higher premiums may have no deductible, meaning insurance coverage starts immediately for covered services, but monthly premiums are generally higher.

Q: Can employees use HSA or FSA funds to pay for deductibles?

A: Yes, if your employees have a Health Savings Account (HSA) or Flexible Spending Account (FSA), they can use those tax-advantaged funds to pay for deductible expenses. This helps them reduce their out-of-pocket costs.

Q: Do deductibles reset every year?

A: Typically, deductibles reset annually, usually on January 1st. However, some plans may have a different reset date, so it’s important to check the policy details. If an employee switches plans mid-year, their deductible may also reset with the new policy.

Q: Are preventive services subject to the deductible?

A: Under the Affordable Care Act, most preventive services, such as vaccinations, annual check-ups, and screenings, are covered at 100% without applying to the deductible. This encourages preventive care, helping employees stay healthy and reducing long-term healthcare costs.

Q: How do family deductibles work compared to individual deductibles?

A: Family plans usually have two deductible amounts: an individual deductible and a family deductible. Once one person reaches their individual deductible, insurance coverage begins for that person. If the family as a whole meets the family deductible, coverage begins for all members, even if not everyone met their individual deductible.

Q: What happens if an employee doesn’t meet their deductible?

A: If the deductible isn’t met, the employee is responsible for paying 100% of their medical expenses, except for preventive services covered by the plan. However, expenses still count toward the deductible, which may be met later in the year if additional medical services are needed.

Q: Can I change deductible amounts mid-year?

A: In most cases, deductible amounts are fixed for the plan year. However, during the annual open enrollment period or if a qualifying life event occurs (like marriage or the birth of a child), employees can switch to a different plan with a different deductible.

Q: How can SimplyHRA help with managing deductibles?

A: SimplyHRA allows you to set a fixed budget for health benefits while giving employees the flexibility to choose the health plan that fits their needs, including different deductible options. This helps you control costs without the complexity of managing a traditional group health plan.