Is a Health Insurance Deductible Prorated for Mid-Year Enrollees?

It may seem unfair to have to pay your entire deductible if you don’t sign up for health insurance until the middle the year. After all, you’re only getting health insurance for half of the year if you enroll mid-year; shouldn’t the deductible be prorated to half of the annual deductible?

This article will explain what you should expect interms of potential out-of-pocket costs if you're enrolling in a new health plan that starts mid-year.

Since deductibles are so expensive, requiring payment of the full annual deductible if you enroll after part of the policy-year is over makes it less likely you'll reach your deductible that year. In this case, you'll be less likely to reap the benefit of having your health insurer start to pay post-deductible benefits when you have claims.

And if you're transitioning from another health plan mid-year, you may have already met some or all of the deductible on the old plan in the earlier part of the year.

Unfortunately, an annual health insurance deductible isn’t prorated for partial-year enrollees no matter how few months are left in the plan year when you sign up for health insurance. The out-of-pocket maximum isn't prorated, either.

(This is generally also always true when you transition from one health plan to another mid-year, but exceptions are occasionally made when there are extenuating circumstances, as described in more detail below.)

Examples

Calendar-Year Policy

You’re uninsured for the months of January through June. You get married during the month of June making you eligible for a special enrollment period (note that this special enrollment period is available if you're eligible for your employer's plan, but it would only be available for an individual market plan—including a plan purchased in the exchange—if you or your spouse already had coverage before getting married).

Fortunately, your spouse already had health coverage, which means you're both eligible for a special enrollment period for individual/family health insurance. You sign up for health insurance coverage on your state’s Affordable Care Act (ACA) health insurance exchange starting on July 1, and we'll say the plan has an annual deductible of $3,000.

All ACA-compliant individual/family major medical plans (on and off-exchange) have a plan year that runs from January 1 through December 31. If you use your health insurance between July 1 and December 31 for anything other than preventive health care or services that are covered with a copay, your health insurer won’t begin to pay part of your healthcare bills that are subject to the deductible until you’ve paid the entire $3,000 deductible (note that this is just the example we're using; the plans available in the exchanges can have deductibles that range from $0 to more than $9,000).

Even though you only have health insurance coverage for half of the year, you still have to pay the entire deductible before your insurer will start picking up the tab.

But if you have coverage that includes copays for things like office visits and prescriptions, those benefits can kick in from the start, regardless of whether you've paid anything towards the deductible. And the ACA's free preventive care also kicks in right away, without you needing to pay any out-of-pocket costs.

Non-Calendar-Year Policy: Deductible can follow the calendar year or the plan year

You’re hired for a new job in early February. Your new employer will provide health insurance coverage as part of your employee benefits package starting March 1. The employer has open enrollment every August for a plan year that runs from October 1 through September 30 of each year.

Your employer's health plan might have a deductible that follows the plan year, which means it would reset each year on October 1. But they may use a calendar-year deductible, which would mean that the deductible still resets each year on January 1, even though the plan renews in October. You'll want to check with your employer to determine which approach the plan uses.

If the plan resets the deductible in line with the plan year, your deductible will reset to $0 on October 1, which is seven months after you enrolled. If the plan has a calendar year deductible, it will reset to $0 on January 1, which is nine months after you enrolled. Either way, your deductible is going to reset to $0 before you've been on the plan for a full year, since you enrolled mid-way through both the plan year and the calendar year.

Note that if an employer-sponsored policy has a non-calendar plan year but a calendar year deductible, they will likely have a deductible carry-over credit if the employer switches to a different plan at the renewal date. And if the employer opts to switch to a different insurer, they may be able to establish a deductible carry-over credit for all employees who have already paid money towards their deductible that year.

Many employers opt to use calendar-year plans, and hold their open enrollment in the fall to correspond to a January 1 start date for the plan year. This keeps things simple and ensures that the plan year and the calendar year are aligned. But employers have flexibility in this and can purchase a plan at any time during the year to cover their employees.

And employees can be hired at any time of the year, meaning that mid-year enrollments are quite common, even for employer-sponsored plans that follow the calendar year. In that case, the employee's deductible will reset either at the end of the calendar year or the end of the plan year (depending on the approach the employer uses), regardless of how long the employee has been enrolled in the plan and regardless of how much they've paid toward their deductible at that point.

Health Insurance Deductibles Generally Aren't Transferable From Plan to Plan

What if you switch from one health plan to another during the policy year? In almost all cases, the amount you had already paid toward your annual deductible in the health plan you had early in the year is not credited toward the annual deductible in the health plan you have later in the year.

When you enroll in the new health plan, the amount you’ve paid toward your new deductible starts over at zero even if you had already paid your entire annual deductible in the other plan.

An exception, noted above, is generally available when an employer or employee with a non-calendar-year plan opts to switch to a different plan—from the same insurer or even a plan offered by a different insurer—during the group's annual renewal period.

Deductibles generally aren't transferable from one plan to another (especially when different insurance companies are involved) unless it's a plan change during an employer's open enrollment period But this can sometimes be modified based on extenuating circumstances that impact a large number of policyholders and intervention from the state Insurance Commissioner.

For example, there were widespread exceptions granted in 2021, for people who had individual/family coverage and opted to switch to a different plan during the COVID/American Rescue Plan special enrollment period. In many cases, insurers agreed to allow out-of-pocket spending to transfer to the new plan, although in almost all cases, this was only available if the person picked a new plan from the same insurance company.

Another example is the solution that was created for members of New York's Health Republic Insurance, which shut down in November 2015. An agreement between NY state regulators and three private insurance companies allowed Health Republic members to get credit (on their new December 2015 coverage) for their deductible and out-of-pocket expenses that they had already paid during the first 11 months of the year.

Oregon regulators worked out a similar agreement for Oregon Health CO-OP members when the CO-OP shut down at the end of July 2016. And when Friday Health Plans exited Colorado's market at the end of August 2023, two other Colorado insurers agreed to honor accumulated deductibles if enrollees switched to their plans at that point.

(But Friday Health Plans also exited the market in mid-2023 in four other states, and no insurers agreed to transfer accumulated deductibles in those states.)

This is not usually an issue, as health insurer shut-downs and market exits—which are generally rare anyway—tend to happen at the end of the calendar year. In that case, members switching to a new plan would have been starting over with a new deductible even if they had been able to keep their plan for the new year.

Some insurance companies will also make exceptions when an enrollee switches from one plan to another within the same insurance company. An example might be a person who has individual market coverage and then switches to a small group plan with the same insurer mid-year, or a person who has coverage under an off-exchange plan and then switches to an on-exchange version of the same plan mid-year due to a qualifying event.

There is no requirement that the insurer credit the enrollee for the amount they had paid towards their deductible on the first plan, but there is also nothing preventing them from allowing a deductible carryover credit—and it can't hurt to ask, because sometimes they say yes.

COBRA and health insurance deductibles

When a person is eligible for COBRA or state continuation (mini-COBRA), there are a variety of factors that go into the decision about whether to elect that coverage option or switch to a new plan.

One of those factors is whether the person has already met their deductible earlier in the year. If so, electing to continue that same policy might be a wise choice, as it will avoid a scenario in which the person has to start over mid-year with a new plan's deductible.

But it's also important to factor in the cost of the coverage: How much will you pay in premiums for the continuation of the group coverage, versus how much will you pay in premiums for the new coverage?

There's no right or wrong answer when it comes to whether to continue a group plan with COBRA (or mini-COBRA) or enroll in an individual/family plan instead. But avoiding a mid-year deductible reset is certainly one of the reasons that sometimes makes people pick COBRA instead of a new plan.

Example

You had health insurance coverage with an individual/family market plan (ie, a plan you bought yourself, either in the exchange or directly from an insurer) from January 1 through July 31. During that time, you paid $1,300 toward your $5,000 health insurance deductible.

You drop your individual plan when you get job-based health insurance coverage beginning August 1. This new job-based coverage has an annual deductible of $1,000.

The $1,300 you already paid toward your individual plan's deductible does not count toward your new job-based health insurance deductible. You must start from scratch, paying the entire $1,000 job-based health insurance plan’s deductible before that insurer begins to pick up the tab for your medical bills that are subject to the deductible.

As noted above, it's possible—although very unlikely—to end up in a situation in which the individual market plan was offered by the same insurer that's offering the new job-based plan, and you get them to agree to a deductible carryover credit. But this is the exception to the rule; in general, you should expect to have to start over with your deductible if you switch to a new plan mid-year.

Can You Recoup the Money If You Have to Pay Twice in One Year?

There’s no way to recoup all of the additional money you spent toward your health insurance deductible when you switch plans mid-year after paying the first plan’s deductible. However, cost-sharing expenses like deductibles, copays, and coinsurance can sometimes be used as a tax deduction resulting in lower income taxes.

And if you have a health savings account, you can use the tax-free money in the account to cover your out-of-pocket costs, including the potentially higher costs you might face if you end up having to switch plans mid-year.

Summary

Health insurance deductibles (and out-of-pocket maximums) are not prorated when a person joins a plan mid-year. They still have to meet the regular annual deductible before post-deductible benefits kick in.

There are occasionally exceptions to this rule, when a new health plan will give a person credit for the amount they already spent in the current year on another health plan's deductible. But this tends to be quite rare, and usually results from extenuating circumstances.

A Word From Verywell

If you're switching health plans mid-year, you'll likely have to meet the new health plan's full deductible before receiving any post-deductible benefits. But it's always a good idea to ask whether you can get a credit for money you've spent earlier in the year toward another health plan's deductible. Depending on the circumstances, you might find that the health plan agrees to this credit. Although this is uncommon, you won't know for sure until you ask. The worst they can say is no.