Hacking Health Insurance with Deductibles and Excesses

With the global Covid-19 Coronavirus pandemic still raging across the world, interest in Health Insurance and Medical Insurance protection is at an all time high. While many people understand things like In-patient protection vs outpatient protection, or will know to include maternity coverage on their policy if they plan on starting a family, there are some aspects of health insurance which are widely misunderstood or overlooked.

One of the aspects of Hong Kong health insurance that often goes ignored is the Deductibles or Excesses you choose to place on your policy.

What is a deductible?

Simply put, under any Hong Kong or international health insurance policy, a deductible is the amount that you will contribute towards the cost of your healthcare beyond what you have already paid in premiums.

For example, when you sign up and are accepted to a health insurance plan you will pay a premium for the coverage. This premium guarantees that you are covered up to the policy maximums, terms, and conditions. However, when applying for your coverage you will have been given the option of choosing a deductible, excess, co-insurance, or co-pay to put on the policy.

Should you choose to include a deductible in your health insurance plan then the health insurance will not provide coverage until you have paid the stated deductible amount. In essence, a deductible, excess, co-insurance, or co-pay option on your health insurance policy requires you to share in the financial burden of your healthcare by paying an initial cost, with the insurance covering the remaining balance up to the stated policy limits.

How do deductibles work?

As you may have guessed from the previous section, the topic of deductibles isn’t simple – there are actually different types of “deductible,” and they can impact the cost burden you face with your health insurance in different ways.

Some health insurance may not have any deductibles, co-insurance, or co-pays, while other plans might include all the different types of offset mechanisms. It is important that you check your policy and understand exactly what type of contribution clause could impact your ability to effectively utilize your coverage to its maximum.

Deductibles (AKA Excesses)

As the name would suggest, this is the standard form of deductible. Also known as an “Excess” in the United Kingdom and regions with British law, a deductible is the amount that you contribute towards the cost of your healthcare.

Deductibles and Excesses are normally applied to a policy on either a “per-condition” or “per-year” basis. Under a per-condition deductible, you would be responsible for contributing financially towards the costs of care on the treatment of each individual condition you suffer from.

Conversely, a Per-year deductible would mean that you are responsible for covering the total deductible amount each year, before being able to receive coverage under the plan.

Let’s say that a plan’s deductible is $100.

For a policy on which this applied per-condition, the individual would have to contribute $100 towards the cost of their care each time they receive treatment for a separate medical condition. If they see the doctor for a sprained ankle, they will pay $100 with the insurance covering the remaining costs of treatment for the ankle. If that individual saw the doctor for a sore throat, or covid symptoms, they would be responsible for contributing $100 towards the cost of their care as this is now a separate condition.

For a policy on which the deductible is applied per-year, the individual needs to meet the deductible before the insurance provides cover. For example, if the individual receives treatment for a sprained ankle, they would pay $100 towards the cost of their care; satisfying their deductible requirement. Any additional medical care they receive would be covered under the policy as the policyholder has already paid their annual deductible (or personal healthcare contribution).

It is important to note that Per Year, or annual, deductibles will normally be significantly higher than a per-condition deductible. While we have used the simple figure of $100 for illustration purposes, the annual deductible will usually be much higher than the condition deductible.

Co-insurance

While a deductible is the most common type of personal financial contribution on a health insurance plan, some policies may include a Co-Insurance.

A Co-insurance, if it appears on your policy or if you have chosen to include it under your coverage, is the percentage of the cost of treatment that you are expected to pay after you have met your deductible. This is where things start to get slightly complicated, so an explanation is definitely needed.

If a plan has a Co-insurance, once the individual has paid their deductible (whether annual or per-condition) then they will be responsible for contributing a percentage towards any future healthcare costs. Assuming a plan has a 10% con-insurance and a $100 annual deductible, if a policyholder receives $2000 worth of medical treatment then under this scenario then they would be responsible for contributing a total of $290 towards their own treatment costs. They pay a deductible of $100, and 10% of the remaining $1900 of the bill.

A co-insurance on your policy will significantly increase your own personal healthcare costs every time you receive treatment, but co-insurance may not be applied on all benefits offered by a Hong Kong health insurance policy.

Co-pay

The final type of contribution that a person is likely to make towards their own healthcare costs under a health insurance policy is the Co-Pay.

A Co-pay is a set amount that you pay each time you receive medical treatment, even if you have already met your deductible. A Co-pay, if it exists on your policy, is effective each and every time you seek medical treatment, and is normally rated for the type of treatment you are receiving.

If you visit a General Practitioner (and your policy offers outpatient protection) with a $10 co-pay on your plan, then you will need to pay $10 each time you visit the doctor. Even if you have paid your deductible and your coinsurance.

Why should I consider Deductibles?

Deductibles are complicated.

As we’ve just seen, they come in different varieties and the effects can stack – meaning you could actually be looking at significant costs when receiving medical treatment. When you’ve already paid a hefty premium for a Health Insurance plan this can almost feel like a kick in the teeth, or adding salt to the wound, but there is a reason (a very good reason) deductibles exist.

Do you want to know the secret? Here it is:

Deductibles lower your premium.

By choosing to contribute towards the costs of your own healthcare you can often (significantly) lower the overall cost of your health insurance plan and bring down the premium. The bigger the deductible the greater the discounts you’ll realized.

Deductibles are scary and can be extremely confusing (especially if you’re considering a Hong Kong health insurance policy which includes Deductibles, Co-pays, and Co-insurance). But they’re a tool health insurance providers utilize in order to provide insurance while allowing policyholders the ability to control what they are paying.

Remember, insurance is defined as the equitable exchange of risk in return for a pre-determined fee. Both the policyholder and the insurer can affect the equity of the plan (and consequently the fee being paid) by adjusting the overall risk. Outside of key factors like age and medical history, which cannot be adjusted, the most obvious way to influence the equity of the risk being exchanged is by affecting the exposure of the insurer.

If the policyholder contributes more towards the cost of their healthcare through tools like a deductible, then the exposure faced by the insurer towards those potential healthcare costs are reduced, as is the overall premium associated with the policy. Health insurance plans with extremely high deductibles are known as “catastrophe health insurance” policies, because the only real use for them is in a severe medical emergency – with the high deductible the policyholder isn’t going to meet the coverage threshold except in critical situations.

The choice of deductible on your policy is entirely up to you. But ignoring your deductible options is a huge mistake, especially when they play a key role in the longevity and utility of your health insurance coverage.