What Is the Deductible in Supplemental Health Insurance?
Today, many individuals are insured and use their coverage to manage medical and treatment expenses. In practice, it may occur that, after a loss or medical expense arises, an insured person cannot recover the full cost from the insurance company. As a result, the insured must personally pay a portion of the expenses. This concept is commonly referred to as the deductible in supplemental health insurance.
Most insurance policies include a deductible. In essence, the deductible is the portion of the loss the policyholder pays out of pocket; the insurer has no obligation to reimburse it. In supplemental health insurance, deductibles have become standard across nearly all health insurance systems.
How a Deductible Affects Reimbursement of Medical Expenses
The Meaning of “Deductible”
The Persian term commonly used for deductible is derived from the French pronunciation of franchise. In English usage in the insurance context, it refers to the portion of a loss not paid by the insurer.
From a practical perspective, policyholders may use deductibles to control premium rates for supplemental coverage. Insurers, in turn, may increase deductibles for higher-risk coverage in order to offer lower premiums. The exact deductible amount is specified in the insurance contract between the policyholder and the insurer and is typically set between 10 percent and 30 percent.
For example, if your supplemental policy provides a deductible of 10 percent and you have paid 1,000,000 rials for a laboratory test, then, after submitting the required documents to the insurer’s representative, the insurer is required to pay 900,000 rials, and the remaining 100,000 rials is borne by you as the deductible. Naturally, a lower deductible percentage increases the insurer’s share of the payment, which is generally more favorable to the insured person.
Why Deductibles Exist in Insurance
Deductibles are common in most insurance products and offer benefits for both policyholders and insurers. These benefits include:
- Lower premiums for the policyholder: One benefit of a deductible is that it can reduce premiums. In many cases, the policyholder may also reduce the deductible by entering into an agreement with the insurer, paying an additional premium.
- Fewer claims for minor losses and lower administrative costs: A deductible discourages policyholders from submitting claims for low-value expenses. This can strengthen the insurer’s financial stability and reduce administrative costs.
- Addressing moral hazard: In law and economics, there is an important concept known as the prevention of moral hazard. The idea is that excessive protection may encourage carelessness or reduced precaution, thereby increasing the risk of harm to oneself or others. By requiring insured persons to share part of the loss, deductibles can encourage safer behavior and preventive measures.
Types of Deductibles in Supplemental Health Insurance
A deductible may be structured in several ways, including:
- A fixed amount.
- A percentage of the loss.
- A percentage of the insured amount.
Combined Deductible
Under a combined deductible model, the deductible is determined by combining a fixed amount with a percentage of the loss. For example, a policy may provide that the deductible is 40 percent of the loss or up to a ceiling of 600,000 tomans, whichever is lower.
Is It Possible to Remove the Deductible?
In some contracts, the deductible may be removed at the policyholder’s request and set to 0%. Insurance companies generally increase premiums to remove the deductible. As a result, policies with no deductible usually have higher premiums than those with a deductible.
It should be noted, however, that removing the deductible does not necessarily mean that the insurer will pay all costs in full. Other deductions and limitations may still apply, including exclusions from supplemental coverage. Examples may include hospital clothing costs, Ministry of Health tariff limits, and any difference between the reimbursable tariff and the actual amount paid. Therefore, a no-deductible policy typically removes only the deductible, while other contractual deductions may remain.
Frequently Asked Questions About Deductibles in Supplemental Health Insurance
A deductible is the portion of medical expenses that the policyholder pays personally and that the insurer is not obligated to reimburse. It is commonly between 10 percent and 30 percent of the costs.
A deductible can reduce premiums, discourage claims for minor expenses, reduce administrative costs, and help address moral hazard by ensuring the insured shares in the loss.
Deductibles may be set as a fixed amount, a percentage of the loss, a percentage of the insured amount, or as a combined formula.
A combined deductible applies the lower amount between a fixed cap and a percentage of the loss, for example, 40 percent of the loss or up to 600,000 tomans, whichever is lower.
Yes. Some insurers may offer policies with a zero deductible upon request, but premiums are typically higher, and other exclusions and deductions may still apply.
The lower the deductible percentage, the higher the insurer’s share of the reimbursement. The higher the deductible, the larger the portion the policyholder pays. What does the deductible mean in supplemental health insurance?
Why is there a deductible in supplemental insurance?
What are the types of deductibles in supplemental insurance?
How does a combined deductible work?
Is it possible to remove the deductible?
How does the deductible affect reimbursement?
