Deductible

A deductible is a provision in an insurance contract that states the initial amount of money a person has to pay for his or her own medical expenses before the policy makes a payout.

It is usually expressed as :

  • Dollar amount
  • Percentage of expenses
  • Time period

Failing make payment for these deductibles would mean that the expenses would not be reimbursed by the insurer.

Why deductibles?

The main reason for deductibles to be underwritten into health insurance policies is to deter abuse of claims.

When a person is fully covered without needing to pay any of the medical expenses from his to her own pocket, it can be very tempting and easy to choose the best hospitals, most luxurious rooms, and most experienced doctors.

Insurers would pick up the tab anyway.

But when a patient has to pay as little as 1% of the costs, the whole decision criteria can change dramatically.

Choosing the type of services and type of treatment would then be a more pragmatic choice.

But the abuse don’t just lie with patients. Service providers can abuse the system too.

If patients are fully covered without deductibles or co-payments, doctors might recommend the most expensive treatments, and even suggesting treatments that are not necessary to the patients.

Since insurers would be paying for them, patients can be open to receiving extra treatment as long as the doctors recommended them, and they do not have to pay for them.

This can also lead to hospitals over-pricing their services as patients would just have to file claims for reimbursement without feeling the pinch of the dollar.

With service providers ever-willing to charge more, and patients more than welcomed to spend more, this can also easily spiral into the tendency for insurance fraud where falsified receipts are issues for services “rendered”.

If such a systematic abuse of insurance is carried out, it can appear on the surface that insurers would be the ones bearing the brunt of financial damage.

But that is not true. The ultimate losers are the consumers.

This is because insurers keep a watchful eye of their finances. And when they realize that claims are unhealthily exceeding premium pools, they would increase premiums citing higher costs… which is true…

Insurers retain the right to increase premiums usually through clauses or terms in contracts, or simply through an adjusted premium.

How much deductibles?

It goes without saying that if given a choice, any sane person would rather have fully covered medical expenses than partially covered for their insurance plans.

And if deductibles come into the picture, one would prefer as little deductible as possible.

But this comes at a price.

Low deductible plans understandably come with higher premiums.

In addition, one might be looking at co-insurance or copayments after that.

And if someone is to pay extra premiums for low deductibles, insurance riders should also be considered as alternatives as they usually come with more features rather than just a lower deductible.

Yet because basic medical plans can be paid with Medisave and riders have to be paid with cash, most people would choose to go with better plans rather than buying riders as add-ons to basic plans.

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