Carryover Provision

A carryover provision is an insurance policy clause that allows the policyholder to move claims from the end of one year to the beginning of the next year. Usually this provision only applies to losses sustained in the last three months of the year. 

Carryover provisions are commonly found in health insurance and related healthcare plans, and can be found in Flexible Spending Accounts (FSA) as well. The insured can benefit from having a carryover provision on a policy if the policyholder incurs a high number of claims in one year and have already met their deductible. This allows the policyholder to move additional claims that would have had no effect on this year’s deductible to next year to offset additional out of pocket costs. Carryover provisions are most commonly found on employee-sponsored plans, but can sometimes be optioned on individual plans as well. However, the cost of the additional rider may prove to be too much for individuals to carry on their own.

Deductibles are found on almost all insurance policies. The deductible is the amount of loss that the policyholder is responsible for before the insurance policy coverage kicks in. Deductibles can vary greatly between insurance policies, but generally policies with higher deductibles have lower monthly premiums, because an insurer is responsible for less of the insured’s over-all coverage.

A carryover provision is sometimes also known as a fourth-quarter deductible carryover.

For example, Katie Jones has a stomach condition that causes her frequent trips to the emergency room. Her health insurance policy has a high deductible that must be met before the coverage takes effect and covers her health care costs. She takes out a policy with a carryover provision because she is familiar with having to pay a lot of her medical costs out of pocket and wants to lessen her individual outlay. Her deductible for this policy is $5,000. In 2017, she meets her deductible by March. She ends up filing several claims throughout the rest of the year, all of which are covered by her policy. As she nears the end of the calendar year, her carryover provision goes into effect. All the claims she files for the end of 2017 have now been applied to the start of 2018. Since she pays an additional $500 during that time, the money is applied towards the deductible for the following year.

By mid-January Katie is back in the hospital. Thanks to her policy’s carryover provision, she has already been able to apply $500 towards her $5,000 deductible and now only has $4,500 left until her deductible is met.