What is a deductible in Health Insurance?
A deductible is usually a fixed maximum amount you agree to pay for covered services before your health insurance kicks in to cover the majority or entirety of the cost.
As a general rule, the higher your annual deductible, the lower your monthly premiums, and vice versa. Employees in Germany usually choose a low deductible because employers contribute half of an employees’ health insurance premiums – but do not contribute towards deductibles. Self-employed people often choose higher deductibles in return for lower premiums.
You have health insurance so that it can pay your healthcare costs when you’re sick. There are two ways to manage this. First, you can take out a policy that pays 100% of the costs of healthcare but then your monthly rate is higher. Alternatively, you and your insurance provider can agree on a deductible – a mechanism through which you pay a share of the costs you incur which lowers your monthly costs and stabilizes premiums.
Deductibles exist in one form or another in almost all insurance policies, so they aren’t just a recent invention by private health insurance providers. In the public health insurance system, policyholders often have to make out-off-pockets-payments e.g. for prescription medicines and certain treatments. From a co-payment when you have dental prosthetics fitted to prescription charges, these payments can really add up.
Types of deductibles in Health Insurance with examples
Private health insurance providers often structure deductibles in different ways. In most cases, however, deductible structures follow one of three models:
- comprehensive deductible
- non-comprehensive deductible
- percentage-based deductible
Comprehensive deductible: The standard model in most private health insurance tariffs
In this commonly used model, you agree to pay your insurance provider a general deductible for each calendar year, no matter what benefits you claim. In most cases, you’ll agree on a fixed amount.
A comprehensive deductible is therefore an amount you pay – perhaps €500 per year – and only once you’ve paid that amount in medical bills does your insurance step in to cover further costs. This means it’s entirely possible that you’ll receive a doctor’s bill for €500 in January and have to pay it all yourself. However, your insurance will cover all further bills for the rest of the calendar year.
Example 1: Common private insurance tariffs
Comprehensive deductible: Max. €500.00 per year
Doctor’s bill:
Amount due: €500
Deductible: €500
________________
Reimbursement: €0
In this case, you would cover the full €500.00 yourself.
Example 2: Common private insurance tariffs
Comprehensive deductible: Max. €500.00 per year
Specialist consultant’s bill:
Amount due: €400
Deductible: €400
Prescribed medication:
Amount due: €150
Deductible: €100
Physical therapy:
Amount due: €250
Deductible: €0
______________
Reimbursement: €300
In this case, you would cover €500.00 of the total costs of €800.00.
Non-comprehensive deductible
The advantage of private health insurance is that you can adjust certain elements of your insurance cover to suit your needs. One such element is your deductible, as some insurers will allow you to apply your deductible to certain medical coverages only. This often involves a comprehensive deductible applicable to these medical coverages only.
Example: You agree that your deductible will only apply to healthcare costs incurred through inpatient hospital treatment.
Percentage-based deductible
Rather than a fixed amount, in the percentage-based model you pay a set percentage of the healthcare costs you incur. This means you pay a fixed proportion of your bills yourself. However, the total costs are capped, so once you’ve paid a certain amount, your insurance provider will step in to cover all healthcare costs. This type of deductible can also be applied to all services and benefits or restricted to certain areas only.
So, with a percentage-based deductible, you only ever pay a small proportion of your healthcare costs, such as 10% of each bill. The same goes for all other bills until you reach your annual maximum.
The benefits of a percentage-based deductible are obvious: you’ll only pay the maximum amount if you incur some €5,000 in healthcare costs. When you’re young, it’s unlikely your bills will run that high. So, in many cases, a percentage-based deductible costs less than a comprehensive deductible. If you incur lower healthcare costs, you’ll also pay less for your deductible.
Plus, you won’t have to deal with a large doctor’s bill before your insurance steps in, and instead spread your deductible over smaller amounts throughout the year. Paying your deductible in installments, effectively.
Example 1: ottonova tariffs
Percentage-based deductible: Deductible of 10%, maximum €500.00 per year.
Doctor’s bill:
Amount due: €500
Deductible: €50
Reimbursement: €450
In this case, you only pay €50.00 yourself.
Example 2: ottonova tariffs
Percentage-based deductible: Deductible of 10%, maximum €500.00 per year.
Specialist consultant’s bill:
Amount due: €400
Deductible: €40
Prescribed medication:
Amount due: €150
Deductible: €15
Physical therapy:
Amount due: €250
Deductible: €25
______________
Reimbursement: €720
In this case, you only pay €80.00 of the total costs of €800.00.
Your insurance provider sets the deductibles for each tariff they offer. You can often select from several deductibles in each tariff.
Important note: A deductible is not a fixed payment you are obligated to make in full. If, at the end of a year, you have only paid €300 for your deductible, you certainly do NOT have to pay the remaining €200.
How does health insurance deductible work?
We have an interest in helping you stay healthy and hope to help you do just that for your entire life. A percentage-based deductible contributes to this in various ways.
From the very first day of your insurance policy, ottonova will cover the majority of your bills. That’s good for your bank balance, because you won’t have to pay your entire deductible in one go. Plus, you won’t have any reason to forgo treatments you need or skip check-up appointments due to financial concerns.
In addition, a deductible shares the risk between the insurance provider and the insured person – with clear benefits for both parties. It gives the insurance provider premium stability because it enables it to estimate its policyholders’ healthcare costs more accurately. Meanwhile, privately insured people benefit from paying their deductible in smaller payments over time.
More stable premiums benefit all policyholders – known as the insurance collective. However, the risk to the individual is still negligible as the deductible is capped, or limited, for each calendar year.
Important to know: You don’t need to worry about costs spiraling out of control. In Germany, private health insurance providers are legally required to limit deductibles to a maximum of €5,000 per year.
Who could benefit from a tariff with a deductible?
- Self-employed professionals: The biggest beneficiaries are self-employed professionals. As your own boss, you pay your premiums in full, without any employer contributions – and so reap the benefits of reduced premiums in full.
- Employees: If you’re employed, you’ll pass the savings on to your employer – as they pay a contribution to your premiums. However, they do not pay anything towards your deductible. You should think carefully about what deductible is most suitable for your circumstances.
- Students: If you study and want your health to be protected by the benefits of private health insurance, a tariff with a relatively small deductible of €500 per year can lower your monthly rates.
Important: Make sure you don’t select a deductible that is too high for you. Although increasing your deductible is usually straightforward, you might have to undergo another health examination if you want to lower it. In that case, any reduction in your premiums could be canceled out if your insurer applies a risk surcharge.
Does the public health insurance system also use deductibles?
Some public health insurance providers allow you to choose selective tariffs that include a voluntary deductible. You then cover a share of your healthcare costs, just like in the private system.
But also if you are insured in a regularly insured with public health insurances you often have out-off-pocket expenses e.g. for medication or dental prosthesis that really can add up.
Important note: If you opt for a selective tariff with a deductible, you will be tied to that insurance plan for the next three years.
Choosing the Right Deductible
Your deductible reduces your monthly premiums. Self-employed professionals and freelancers benefit most from a higher deductible, as they have to pay their health insurance premiums without employer contributions. A higher deductible allows you to reduce your premiums.
Employees, on the other hand, should bear in mind that their employer’s contribution is applied to their premiums – but not to their deductible. As a result, employees often choose a lower deductible.
The deductible you choose also has an effect on your income tax savings. You can include your private health and long-term care insurance premiums as special expenses on your tax return. But, if your deductible reduced your monthly premiums, your tax savings will also be reduced.
