What is the primary function of a deductible in health insurance?

The primary function of a deductible in health insurance is to establish the amount a policyholder must pay out of pocket before their insurance starts covering their healthcare costs. This means that when an insured individual incurs medical expenses, they must first pay a predetermined amount for those expenses, which is the deductible, before the insurance company begins to contribute to the costs.

This structure helps in several ways. It encourages insured individuals to take an active role in managing their healthcare costs, as they are financially responsible for a portion of their medical expenses before the insurance coverage activates. Deductibles also assist insurance companies in managing their risk by preventing overutilization of services since individuals are more likely to consider the costs of healthcare when they know they have to pay a portion upfront.

Understanding this concept is crucial as it helps policyholders make informed decisions about their health insurance plans, budgeting for potential medical expenses, and understanding the overall functioning of their insurance coverage.