How does a "deductible" work in health insurance?

A deductible is the amount that a policyholder must pay out of pocket for healthcare services before their insurance provider begins to cover the costs. This concept is essential for understanding how health insurance plans manage expenses.

When an insured individual receives medical care, they will first pay their deductible, after which the insurance company will start to share in the payment for covered services. For instance, if someone has a deductible of $1,000, they will need to cover that amount in healthcare expenses before their insurance kicks in to help pay for further costs. This structure can help reduce the overall premium costs for policyholders, as they assume some of the financial risk.

The other options do not accurately represent the function of a deductible. A flat fee for all covered services refers more to copayments, not deductibles. The annual limit on claims pertains to the maximum amount an insurer will pay for covered expenses in a year, which is different from a deductible. Lastly, the total out-of-pocket maximum includes all expenses, such as deductibles, copays, and coinsurance—it's a broader concept than just the deductible itself.