The Deductible Dilemma – Why “Coverage” Doesn’t Mean Affordable

Introduction: The Illusion of Coverage

You now have health insurance for your first job and have attended information sessions about how it works. Since you are recently out of school, this is a new topic for you. Your confusion comes from not understanding how the deductible works and what you will actually pay for any healthcare needs in the coming year.

A year ago, you were diagnosed with a badly damaged knee, and you know you will have multiple appointments and possibly surgery to correct it in the coming months. You are relieved to have health insurance but still do not know how a deductible, coinsurance, and out-of-pocket maximum will impact your budget.

This newsletter will explain why the insured do not usually have coverage problems, but they often have affordability problems hidden in their deductibles.

The Rise of the High-Deductible Plan

Many years ago, health insurance was more straightforward. You paid modest amounts, sometimes had a flat-fee HMO or a low deductible that did not worry you. As costs went up, cost-control measures started becoming the norm.

The birth of preferred provider organizations (PPOs) was the first step in trying to control costs through narrower networks. These networks were made up of doctors, hospitals, and specialists who agreed to lower prices as members were steered to them for care. It worked for a time, but costs continued climbing.

As that pressure continued, high-deductible health plans (HDHPs) began developing. The idea was to accept a higher out-of-pocket deductible in exchange for cheaper premiums and, more recently, through a health savings account (HSA) approved by the IRS. The HSA allows members to save on the side with a tax deduction at the time of payroll deduction and then use the money tax-free when needed for medical costs. Only HDHPs allow this. Traditional PPO plans continued to have rising deductibles but did not qualify for HSAs.

With the lower premiums charged to members each paycheck, employees saw more money in their pockets. If they saved with an HSA, they would have money available to pay their deductible. This sounded reasonable, but unintended consequences appeared in the form of delayed care and medical debt.

Over time, employers began shifting from PPOs to HDHPs, especially after the Affordable Care Act, to control costs and promote consumerism. Employers adopted them for lower premiums, wellness incentives, and the idea of having more personal responsibility. The real result has been delayed care, underinsurance, and growing medical debt.

How the Math Works

Back to our new employee and their new insurance plan. They might see something that looks like this.

Premiums: $200 per pay period (assuming 24 pay periods per year = $4,800 annually) Deductible: $5,000 Coinsurance: 20 percent up to $7,000 Copayments: $10 for certain procedures, $50 for urgent care, and $100 for an ER visit Out-of-pocket maximum (OOPM): $7,000

This setup is confusing for most people, especially anyone new to health insurance.

In addition to premiums, which are taken from each paycheck, you now have to pay for doctor visits and procedures. With a $5,000 deductible, you are responsible for the first $5,000 in covered expenses before the insurance company starts paying. During the year, you might visit the ER and pay a $100 copay, plus any deductible balance. Maybe you have three $10 copays for office visits.

The confusing part is that the money you pay in copays does not apply to the $5,000 deductible, but it does apply to the $7,000 out-of-pocket maximum. In this example, you have paid $130 in copays and $2,800 toward your deductible.

Now you are scheduled for knee surgery, estimated at $15,000.

You have already paid $2,800 toward your deductible through earlier visits. Copays totaling $130 do not count toward the deductible, so you still owe $2,200 more to reach your $5,000 deductible.

Once you hit the deductible, the plan begins paying 80 percent of covered costs. You pay 20 percent coinsurance until you reach your $7,000 OOPM.

Coinsurance on the $15,000 surgery would normally be $3,000 (20 percent of $15,000). However, because your deductible spending ($5,000) and copays ($130) both count toward the OOPM, you only need another $1,870 in coinsurance to reach the $7,000 limit.

At that point, the plan covers 100 percent of additional covered expenses for the rest of the year.

What Happens Out of Network

Now let’s add a common surprise: using an out-of-network provider.

If your surgeon or hospital is out of network, the total charge is often 20 percent higher. That turns your $15,000 surgery into $18,000.

Here is where the fine print matters. Out-of-network costs do not count toward your in-network out-of-pocket maximum. Most plans have separate, higher out-of-network limits, sometimes double, and may not cap balance billing at all. That means even if you have reached your $7,000 in-network OOPM, an out-of-network bill can still add thousands more.

That extra 20 percent can easily add another $3,000 to $4,000 in uncovered costs, depending on the provider and plan rules.

In the worst-case year, you could spend between $14,800 and $15,800 if you accidentally use an out-of-network provider.

If your care happens early in the year, the rest of your in-network services are covered in full for the remainder of the plan year. If it happens in December, the plan resets a few weeks later, and you start again at zero.

This is the deductible dilemma. You are covered, but affordability depends on timing, savings, and whether your doctor happens to be in the right network.

The Human Impact

Behind every deductible is a person deciding whether to move forward with care. Do you get the MRI now or wait until next year? Do you refill the prescription or stretch it?

When people cannot afford to use their benefits, they stop seeing insurance as security. They see it as another bill. Affordability has quietly become one of the strongest social determinants of health, dividing those who can pay from those who cannot.

Employers in the Middle

Most employers are not trying to shift hardship to workers. They face annual premium increases of 8 to 10 percent, far above wage growth. To keep plans affordable, they raise deductibles or employee contributions. Often times, if a spouse can get insurance from another employer and you choose to cover them under yours, the employer charges a hefty fee for a “working spouse surcharge.” In my instance, it’s $150 per pay period additionally charged.

From a personal perspective, my family insurance has great coverage and we’re happy with it. One year we were given the enrollment package showing that premiums were the same for the following year! Great news, but then we found that the deductible had gone up $1000.

I don’t blame the employer at all. It’s a constant balance trying to provide good coverage at reasonable prices.

Redefining Coverage

A deductible that prevents someone from seeing a doctor is not protection. True coverage means accessible care at a price people can realistically afford. Primary care, mental health, imaging, and prescriptions should never be considered as extras, but instead just part of care.

Affordability is not a feature to add later. It is the foundation of a functioning health plan.

The Real Measure of a Plan

Health insurance that people cannot afford to use is not real insurance. The deductible dilemma is not only about numbers but about priorities. Somewhere between premiums and claims, we lost the definition of what coverage should mean.

Maybe the path forward starts with listening. Not to spreadsheets or utilization reports, but to the people who live with the consequences of every design decision.

Just Keep Listening.

#HealthcareCosts #InsuranceDesign #AffordabilityGap #LevelFunded #EmployerBenefits #JustKeepListening #SDOH #HealthEquity