Deductible is the amount that every health insurance policy holder must pay to activate the liability of the health insurance company to pay for those medical services that are covered under the policy. Deductibles help health insurance companies simultaneously on many fronts.

Firstly, the deductible requirement protects health insurance companies from frivolous claims. The primary objective of health insurance is to ensure people do not miss out on essential health care due to lack of money. A relatively small premium paid every year ensures medical treatment up to a specific amount covering specific conditions. The insurance company covers bulk of cost of treatment. A $1,000 deductible on a $100,000 medical bill represents just 1% of the total cost. Remaining 99% cost is borne by the insurer subject to the terms and conditions of the policy.

In such a scenario, absence of deductibles may lead to health insurance companies being flooded with claims on treatment of minor illnesses. This will defeat the very purpose of health insurance and compel the companies to scale back operations.

Secondly, deductible rationalizes the cost of processing the claims. Insurance companies have set up a huge network for easy flow of information between patients, medical institutions and insurers. The paperwork and procedural aspects cost time and money. Deductibles ensure companies do not end up with claims that are valued less than the cost of processing the same. A claim for $20 that costs $25 for the insurance company to process will be a self-defeating proposition.

Thirdly, insurance companies avoid innumerable instances of frauds and insurance scams by imposing deductibles. This requirement prevents individuals from colluding with fraudulent individuals in the medical fraternity to come up with an imaginary illness that may require perpetual treatment. The deductible ensures such scams do not become too easy to implement. The initial deposit requirement acts as a safety valve that protects insurance companies from brazen attempts of fraud.

Fourthly, deductibles ensure the onus of taking good care of one's health remains on the shoulders of the individuals. Blanket coverage without any such requirement will remove all motivation to stay healthy. Health insurance will cease to remain a solution of last resort and will become a solution of the first resort. Any form of insurance remains viable only when the loss suffered by a few is spread over a large number of persons. If each and every individual owning health cover files a claim, insurance companies will go out of business in a single day.

From acting as a moral and psychological deterrent to imposing financial responsibility on the individual who has fallen ill - deductibles serves multiple purposes and protects insurance companies and insured alike.