What is a deductible?

Have you seen the term “deductible” when shopping for a health insurance plan, but aren't sure what it means? Understanding your health insurance deductible is crucial for effectively managing your medical finances. It will also help you make informed decisions when choosing a policy.

To help you learn what you need to know, we'll take a deep dive into what a deductible means for you and your family.

In this blog post, you’ll learn:

• What a deductible is, how it works, and its importance in managing health insurance costs.
• The different types of deductibles and how they affect out-of-pocket medical costs.
• The differences between high and low deductible insurance plans and how to choose the right one based on your healthcare needs and budget.

What is a deductible, and how does it work?

A deductible is the amount of money a policyholder must pay before the insurance company begins to cover the cost of their care. Your insurance company typically determines your deductible annually. The amount can vary depending on the type of plan. For individual and small group health plans, it can also vary depending on the metal tier you select.

For instance, if your health insurance plan has a $1,500 annual deductible, you'll pay $1,500 out of pocket first. Once you meet your deductible, the insurance company will pay a percentage of your medical costs for the rest of the plan year.

At this point, you won't have to pay for covered services on your own. However, you'll still be responsible for any copayments or coinsurance amounts until you reach your out-of-pocket maximum. Once you reach the maximum, your insurer will cover 100% of your covered medical claims.

A copay is a fixed amount you pay for a medical treatment, such as $20 for a physician visit. Coinsurance is a percentage of costs that you pay after meeting your deductible. For example, 20% of prescription drug costs. You'll want to review your plan details to see your copay and coinsurance details.

Why is understanding deductibles important?

Understanding deductibles is key to choosing the right health insurance coverage when considering your financial situation. For example, generally, the higher the deductible, the lower the monthly premium, and vice versa. It's vital to remember this when shopping for individual health insurance on a public or private health exchange to get the best bang for your buck.

Additionally, insurance deductibles significantly impact how much you'll pay toward out-of-pocket expenses. An out-of-pocket expense is the amount you'll pay for a service or item your health insurance plan doesn't fully cover, such as a doctor visit or prescription drugs.

Before you meet your deductible, you must initially pay the full costs of most medical services on your own. Once you reach your deductible, you could pay, on average, between 10% and 100% of the total cost of the item or service, sometimes lower. So, if you need frequent medical care or have a chronic health condition, consider a plan with a lower deductible to keep out-of-pocket expenses low.

What are the different types of deductibles?

Various types of deductibles can impact the cost and coverage of a healthcare plan. The sections below provide a few examples.

In-network deductible vs. out-of-network deductible

Many health insurance plans have separate deductibles for in-network and out-of-network services.

An in-network deductible is what we've been referencing. It's what you pay out of pocket for covered healthcare services received from providers in your insurance company's network before your plan starts sharing costs.

An out-of-network deductible is the amount you must pay before your plan helps cover services from providers who aren't in your network. Out-of-network deductibles are usually much higher. Some plans, such as health maintenance organizations (HMOs) and exclusive provider organizations (EPOs), may not cover out-of-network care at all, except in emergencies.

Annual deductible vs. separate deductible

An annual deductible is the amount an individual or family must pay for most covered healthcare services before their insurance provider begins paying its share. Once you meet your annual deductible, your insurance company begins paying a portion of healthcare expenses for the rest of the plan year.

On the other hand, an insurance company may have separate deductibles for specific services. For example, suppose your plan has a separate deductible for prescription drugs. In this case, you must meet that specific deductible before your insurer will begin covering its share of prescription medication costs.

According to KFF’s 2025 Employer Health Benefits Survey, 88% of covered workers with single coverage are enrolled in a plan with a general annual deductible¹.

Individual deductible vs. family deductible

Individual deductibles apply to an individual's medical expenses, while family deductibles apply to the entire family's healthcare costs.

For example, a health plan with an individual deductible of $1,000 requires an insured person to pay the first $1,000 of their medical costs before their insurance company starts to pitch in. A family deductible of $2,000 means that the entire family must pay $2,000 in medical expenses before the insurer begins covering costs for everyone in the plan.

Aggregate and embedded deductibles can further complicate family deductibles. With an aggregate family deductible, the plan will cover all members' expenses once the family reaches the specified amount. In contrast, embedded deductibles require each family member to meet their individual deductible before the plan begins to cover their medical expenses.

Average deductible for different group health insurance plans

According to KFF, the average deductible for workers with single coverage was $1,886 in 2025, an increase of 43% over the last 10 years. Additionally, 34% of covered workers with single coverage had a general annual deductible of $2,000 or more.

KFF also found that the likelihood of having a medical deductible depends on the plan type. According to their data, 47% of workers with a health maintenance organization (HMO) or EPO had no deductible for self-only coverage. However, only 14% of workers with a point-of-service (POS) plan and 12% of workers with a preferred provider organization (PPO) plan didn't have one.

Here's a breakdown of the average deductibles by plan type:

KFF also tracks the average deductible for plans sold on the Affordable Care Act (ACA) health insurance marketplaces². Deductibles may vary depending on the metal tier, health insurance company, and type of coverage.

What's the difference between a low and high deductible plan?

A high deductible health plan (HDHP) is a health insurance policy with a high deductible that individuals must meet before their insurance company begins to cover qualified expenses.

To be an HDHP, here are the required minimum deductible amounts³ a plan must have in 2027:

In 2027, an HDHP must also have an out-of-pocket maximum of $8,700 for self-only coverage or $17,400 for family plans. Any plan with a deductible and out-of-pocket maximum lower than these thresholds is not considered an HDHP.

HDHPs may be more cost-effective for individuals with lower healthcare needs who rarely seek medical care. That's because HDHPs have lower monthly premiums than LDHPs. An LDHP offers comprehensive coverage and lower out-of-pocket expenses for those with higher annual medical care usage, even though monthly payments are higher.

You can learn more about HDHPs and LDHPs in our article.

What costs are exempt from deductibles?

The ACA requires all individual insurance coverage on the public exchange to cover 100% of certain preventive services, even if you haven't met your deductible. These medical services are also exempt from copays and coinsurance⁴.

A few examples of preventive care services include:

• HIV screenings
• Blood pressure screenings
• Immunizations
• Lung cancer screenings
• Obesity screening and counseling
• Alcohol misuse screening and counseling
• Annual wellness exams

Remember that preventive care services are free only if you receive them from an in-network doctor or other network provider.

In general, the following expenses don't count toward your annual deductible:

• Any medical service you receive that your health plan doesn't cover
• Out-of-network care
• Copayments
• Monthly premiums

What is a deductible vs. a maximum out-of-pocket?

In contrast to a deductible, an out-of-pocket maximum is the maximum amount you'll pay for covered costs during a full benefit year. The out-of-pocket maximum varies from plan to plan but usually includes copays, deductibles, and coinsurance. It doesn't include your premium cost, out-of-network care, or any healthcare costs your plan doesn't cover.

Once you've reached your out-of-pocket maximum, your insurer will pay 100% of your covered expenses for the remainder of the benefit year, as long as the cost is necessary.

Can I get my deductible costs reimbursed with an HRA?

Yes, your employer can reimburse your qualifying out-of-pocket medical expenses with a health reimbursement arrangement (HRA) if your plan design allows it. Unlike a taxable health insurance stipend, HRAs don't count as part of an employee's taxable income. Reimbursements are tax-free for employees, and employer contributions are tax-deductible as business expenses.

Expenses eligible for reimbursement include:

• Copays
• Coinsurance
• Deductibles

However, it depends on how your employer designed the benefit.

For example, employers can restrict eligible expenses under an HRA, such as reimbursing employees only for monthly premium expenses. If you have a group coverage HRA (GCHRA) that pairs with a group health plan, employers may also limit eligible expenses to only those covered by the insurer's explanation of benefits. In all cases, you'll need to submit proper claim documentation for the expense before receiving any reimbursement.

Check with your employer or HRA administrator to determine which medical expenses are eligible for reimbursement under your specific plan design. If your employer uses PeopleKeep to administer their HRA and allows for out-of-pocket expense reimbursement, you can submit eligible deductible expenses directly through your PeopleKeep account.

Conclusion

A deductible refers to the amount you have to pay on your own before your insurance provider starts covering your medical bills. Having a basic understanding of health insurance jargon is key to choosing the coverage that best suits your needs and budget.

This article was originally published on February 14, 2024. It was last updated on August 27, 2026.

References

1. KFF 2025 Employer Health Benefits Survey
2. KFF: Deductibles in ACA Marketplace Plans
3. IRS Rev. Proc.2026-24
4. Healthcare.gov: Preventive care benefits for adults