Premiums vs Deductibles: Understanding Out-of-Pocket Expenses

Patients today are taking on more responsibility for their overall healthcare costs, and many are feeling the impact of rising premiums and deductibles. Since these are often the first healthcare expenses you pay, it's important to understand what these terms mean — and how they can impact your budget.

What is an Insurance Premium?

A health insurance premium is what you pay each month for your health insurance plan. If you have health insurance through your work, your employer may pay a portion of your premium. Premium payments are often taken out of your paycheck on a pre-tax basis. A premium payment is in addition to your plan's deductible and copay or coinsurance which you pay when you use healthcare services.

What are Deductibles in Insurance?

An insurance deductible is the amount of money you must pay for healthcare services before your insurance begins paying its share for covered expenses. The money you pay for premiums, copays or coinsurance required by your plan usually does not count toward your deductible. Deductibles reset once a year, which means you'll have to meet it again each year you're enrolled before insurance coverage kicks in for that year. Often preventive care is not subject to deductibles, meaning your insurance will cover the cost of preventive care even if you have not met your deductible requirement for the year.

Out-Of-Pocket Maximum: The Most You Must Pay For Covered Services in a Plan Year

Your out-of-pocket maximum is the most you can be expected to spend on your deductible, copays and/or coinsurance in a year. Once you've reached this amount, your health insurance plan pays 100% of the cost of covered benefits. This limit doesn't include your monthly premiums or any amounts you pay for services not covered by your plan.

In 2023 the out-of-pocket maximums for Affordable Care Act (ACA) Marketplace plans are $9,100 for an individual and $18,200 for a family. ¹

How Do Insurance Premiums and Deductibles Work?

Here's an Example:

• You need knee surgery that will cost $10,000.
• You have health insurance with a $300 monthly premium, which doesn't apply to your knee surgery cost or to your deductible. We will add this to your total cost later.
• You have a $3,000 deductible that you'll have to pay before your insurance will cover any of the additional cost.
• Your insurance has a $200 co-pay for outpatient surgery.
• Your out-of-pocket cost for care, not including your premium, would equal $3,200. Your insurance would pay the remaining $6,800 if you have surgery at an in-network facility with an in-network surgeon.
• If you had gotten previous health care and already paid a portion of your deductible, you can subtract that amount from the total you will need to pay. For instance, if you had already paid $500 of your deductible for other health services, your total for knee surgery would be $2,700. Your insurer would pay $6,300.
• Add in $300 for one month of your insurance premium and you should budget for a total cost of $3,500. Remember that you pay monthly premiums for a year, so your total premium payments for the year would be $3,600 ($300 per month for 12 months).

Make the Most of Your Health Insurance Benefits

The more you know about how your health insurance benefits work, the better prepared you'll be to get the care you need for yourself and your loved ones while keeping out-of-pocket costs to a minimum. Follow these tips to get the most out of your health insurance plan:

• Review your summary of benefits so you know what's covered and what's not. You can get this from your insurer.
• Take advantage of preventive benefits that are often provided at no cost to you, such as annual checkups, health screenings, and vaccinations.
• Choose in-network providers. They will cost you less in out-of-pocket expenses. You can usually find a directory on your insurers' website.
• Compare costs for procedures and tests before you receive care.
• Use the most appropriate setting for health care. For instance, urgent care centers can cost less than hospital emergency departments when your condition is not as serious.

Can I Use CareCredit to Pay Health Insurance Premiums and Deductibles?

If you are looking for an option to help manage your medical bills, consider healthcare financing with the CareCredit credit card. The CareCredit card can help you pay for the care you want and need and make payments easy to manage.* Apply today and use our Acceptance Locator to find a provider near you that accepts CareCredit. Continue your wellness journey by downloading the CareCredit Mobile App to manage your account, find a provider on the go, and easily access the Well U hub for more great articles, podcasts, and videos.

Our Expert Reviewer

Patty Caballero and her team of consultants together have more than 35 years of health insurance knowledge working for some of the biggest health insurance companies in the US. She has knowledge in building brands and strategic initiatives to help consumers better understand their health benefits.