What Does It Mean If Care Is 'Excluded From the Deductible'?

What does it mean when health care is "excluded from the deductible" or "not subject to the deductible"? That's a question some readers had in response to a Commonwealth Fund Analysis of individual market health plans sold in states that use Healthcare.gov.

This article will explain what these terms mean, and how you can decipher the coverage that your health plan provides.

"Not subject to the deductible" = You Pay Less

It's easy to see how this could be confusing, since "excluded" is also a word used to describe services that aren't covered at all by a health plan (say, for example, infertility treatment in states that don't require it).

But when a service is not subject to the deductible, it means you've actually got better coverage for that service. The alternative is having the service be subject to the deductible, which means you'd pay full price unless you'd already met your deductible for the year.

To clarify, "full price" means after the network-negotiated discount is applied. So if a specialist's regular charge is $250, but your health insurance company has negotiated a rate of $150, "full price" would mean you'd pay $150.

To make sense of all this, it's important to understand the terminology used to describe health plans. Copay is not the same thing as coinsurance. Deductible is not the same thing as out-of-pocket maximum. Premiums aren't counted in your out-of-pocket costs (although you should include them when you're doing the math to compare plans).

It's also important to understand the Affordable Care Act's essential health benefits, which are covered by all individual and small group health plans with effective dates of January 2014 or later.

If you've got coverage under a small group or individual plan that isn't grandfathered or grandmothered, a treatment that falls under the umbrella of one of the essential health benefits is covered by your plan. However, each state has its own benchmark plan that defines what services have to be covered for each essential health benefit, so the specifics vary from one state to another.

And "covered" just means that your health plan's benefits apply. How those benefits work depends on your plan's design:

• You might not have to pay anything at all (this will be the case for certain preventive care, and it will also be the case if you've already met your plan's out-of-pocket maximum for the year, as long as you're getting care in-network and continuing to follow all of your health plan's rules for things like prior authorization and referrals).
• Or you might have to pay a copay (a flat fee that's pre-set by your plan—maybe $25 or $50 or $100, depending on the treatment in question).
• Or you might have to pay full price for the treatment (if you haven't met your deductible yet and the treatment you're receiving is subject to the deductible).
• Or you might have to pay a percentage of the cost (coinsurance), if you've already met the deductible but haven't yet met the out-of-pocket maximum.

All of those options count as "covered." Health plan designs vary from one state to another depending on the specifics of the benchmark plan that's used to establish parameters for essential health benefits coverage within the state.

And some health plans are creative with how they design their coverage. But regardless of how your plan is designed, the total amount you pay for covered services throughout the year will count towards your out-of-pocket maximum. It can be any combination of copays, deductible, and coinsurance, but once you've met the annual out-of-pocket maximum, your health plan will pay 100% of any covered services for the remainder of the year, assuming you follow all of the plan's rules in terms of using in-network providers, prior authorization, step therapy, etc.

Keep in mind that if you switch to a different plan mid-year, your out-of-pocket maximum will generally start over with that plan.

Copays = Lower Cost at the Time of Service

If your health plan has a variety of services that are covered but not subject to the deductible, it means you'll pay less for that care than you would if the service was subject to the deductible.

If it was subject to the deductible, you'd pay full price for the service, assuming you hadn't already met your deductible (if you had already met your deductible, you'd pay either a percentage of the cost—coinsurance—or nothing at all if you'd also already met your out-of-pocket maximum).

But if the service isn't subject to the deductible, you'll typically be responsible for a pre-determined copay instead of the full price. Note that some services—like preventive care, and on some plans, generic drugs—aren't subject to the deductible or to a copay, which means you don't have to pay anything for that care.

(All non-grandfathered plans have to cover certain preventive care with no cost-sharing, which means the patient doesn't pay anything for that care—it's covered by the premiums that are paid to purchase the plan.)

An Example Is Worth 1,000 Words

So let's say your health plan has $35 copays to see a primary care physician but counts specialist visits towards the deductible. You've got a $3,000 deductible and a $4,000 out-of-pocket maximum. And the specialist's network-negotiated rate with your health insurance company is $165.

Let's say you have three visits to your PCP during the year, and two visits to a specialist. Your total cost for the PCP visits is $105 (that's $35 times three), and your total cost for the specialist visits comes to $330 since you pay full price ($165 times two).

At this point, you've paid $330 towards your deductible (in almost all plans, copays don't count towards the deductible), and you've paid $435 towards your out-of-pocket maximum ($330 plus $105).

Now let's say you're in an accident before the end of the year, and end up in the hospital for a week. Inpatient charges apply to the deductible, and your plan pays 80% after you've paid the deductible until you've met your out-of-pocket maximum.

For the hospital stay, you'd have to pay $2,670 in deductible charges ($3,000 minus the $330 that you'd already paid for specialist visits). Then you'd have to pay 20% of the remaining charges until the total amount you'd paid for the year had reached $4,000. Since you'd paid those three PCP copays totaling $105, you'd only have to pay $895 in coinsurance charges for the hospital stay to get to the out-of-pocket maximum.

Here's how the math would look when it was all said and done: 

• $330 + $2,670 = $3,000 deductible met
• $105 (copays) + $895 (coinsurance) = another $1,000 in charges for the year
• $3,000 + $1,000 (deductible plus all other out-of-pocket expenses) = $4,000
• $4,000 is the out-of-pocket maximum on your plan, which means any other covered services for the rest of the year will be covered in full by your health insurance plan, assuming you stay with the same plan for the rest of the year, and follow any applicable plan rules about using in-network providers, obtaining prior authorization, etc.

If your health plan had subjected PCP visits to the deductible, you'd have paid full price for those as well (let's say $115 each). In that case, you'd have been up to $675 in charges applicable to the deductible prior to your hospital stay ($345 for PCP visits, plus $330 for specialist visits). You'd still have ended up with the same $4,000 in out-of-pocket costs after the hospital stay.

But if the accident hadn't happened and you hadn't ended up in the hospital, your total costs for the year would have been higher on the plan with PCP visits subject to the deductible ($675, instead of $435).

If you end up meeting your out-of-pocket maximum for the year, it's not going to matter one way or the other. But if you don't end up meeting your out-of-pocket maximum—and most people don't—you'll usually pay less when your plan has services that aren't subject to the deductible.

Selecting a Health Plan

If you've got a chronic, serious medical condition that requires extensive treatment, there's a good chance that you'll meet your out-of-pocket maximum for the year regardless of the plan design. You might find that a plan with a lower out-of-pocket maximum will be beneficial to you, despite the fact that it will come with a higher premium.

But people who need a lot of healthcare services might also find that the plans available to them have similar out-of-pocket limits, especially if they're comparing plans offered by an employer: There might be an option with a high deductible and another with a low deductible, but the two plans might have similar caps on total out-of-pocket spending for the year (with the out-of-pocket spending on the lower-deductible plan coming more from copays and coinsurance).

So for a person who needs extensive care, total costs for the year—including premiums and out-of-pocket spending on medical care—might end up being lower under a higher-deductible plan with most services subject to the deductible, since the premium portion of the costs will be lower.

This is sometimes a little counter-intuitive, especially since people tend to assume that higher-deductible plans are only a good fit for young, healthy people. But that's not always the case, and it's essential to really look at how much each plan is likely to cost over the course of the year, including both premiums and out-of-pocket spending when medical care is needed.

Summary

If you're healthy and don't end up meeting your plan's out-of-pocket maximum—or even the deductible—having benefits that aren't subject to the deductible just means that your health insurance company will start paying for a portion of your care sooner than they would if all the services were subject to the deductible. Because otherwise, you'd have to pay full price until the deductible was met, which might not happen at all in a given year.

That said, the more services that are excluded from the deductible, the higher the premiums tend to be. That's why it's so important to include the monthly premiums as well as the out-of-pocket medical costs when you're calculating how much each plan is likely to cost you over the course of the year.

A Word From Verywell

Don't panic when you find out that services aren't subject to the deductible. As long as they're covered by your plan, this just means that you'll pay less for those services than you would if they were subject to the deductible.