If you have a health insurance plan, or you are in the market for insurance, you may be feeling a bit overwhelmed, and maybe confused by all the terms being used: copay, deductibles, premiums, co-insurance, individual out-of-pocket maximum. Add the fact that many of these can vary widely based on the coverage or plan, and you have got a lot to wrap your mind around.
There are three levels of healthcare costs. The higher your costs for the year, the higher up you go: level one, level two, level three. On level one, you pay for everything. When your healthcare expenses get to a certain point, you enter level two, where you and your insurance company share the costs. If the money you are paying out of pocket hits your plan’s cap, then you enter level three, where your insurance will cover everything further.
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Whether your health insurance is provided through your employer plan, through somebody else’s employer plan, or a government-issued plan like Medicare or Medicaid, they all have a set amount for premiums, deductibles, copay, and co-insurance. These are all terms that represent your out-of-pocket costs. If you do not know what those figures are for your policy, contact your insurance company to request a copy of your policy.
Premium
Think of your premium like a monthly subscription fee, like your Netflix subscription. This is how much you pay each month to keep your insurance active. You pay this even if you never go to the doctor. Just like with Netflix, even if you do not watch anything, you are still paying your subscription.
Deductible
Your deductible is the amount specified by your plan that you have to pay in a given year before your insurance pays a dime. For example, if your deductible is set at 4000 dollars, and the bill for your visit to the hospital was 2000 dollars, you have to pay 100 percent of that bill. But if your deductible is set at 4000 dollars and the hospital bill is 8000 dollars, insurance would kick in to help cover half of that bill. Notice that it will help. More on that later.
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The good news is that this is an annual deductible. Once you have paid that amount towards covered medical expenses, you do not have to pay it again until your plan resets. Often this is on January 1st, but that is not always the case. You should check with your insurance provider.
When shopping for health insurance, it is great to look for a plan with a low deductible. However, there is of course a trade-off. Plans that feature a low deductible come with higher monthly premiums, while plans with lower monthly premiums have high deductibles.
Why choose one over the other? It comes down to what you anticipate your usage will be. If you usually go for one, maybe two doctor’s visits per year, you probably want a high deductible with low premiums. These are often referred to as catastrophic coverage plans, because they are not going to kick in until something really significant, or catastrophic, happens. On the other hand, if you visit the hospital a lot, or you have some upcoming procedures, then you probably want a high premium, low deductible plan.
If you have a health insurance usage history, you can use that to help determine which kind of plan is going to be best for you.
Copay
Your copay is a set cost that you pay for a covered healthcare service, such as visiting an in-network doctor, a specialist, or buying drugs. Let’s say you go to see your doctor who charges 250 dollars for an office visit. But your insurance has a copay of 50 dollars for doctor’s visits. You pay 50 dollars, and your insurance picks up the rest.
How do copays work if I have not met my deductible yet? Because copays are paying for some of your medical expenses. It does not kick in until after you hit your deductible? It depends on your policy. So that is something you really want to check on.
Your insurance will likely have a list of preventative care benefits that they will cover at 100 percent, no copay, no deductible, no co-insurance. These often include vaccines and many types of screenings, so take advantage of those.
Co-Insurance
Co-insurance is a shared cost between you and the insurance company. Depending on your policy, it may say that after your deductible, you pay 20 percent and your insurance company pays 80 percent. That is called an 80/20 policy.
For the ease of math, let’s say you have a 50/50 policy with a 4000 dollar deductible, and you just had an 8000 dollar ER visit. You pay the first 4000 dollars to meet your deductible, and then the second 4000 dollars would be split 50/50, meaning you would pay 2000 dollars of that. So for that 8000 dollar ER visit, you would be out 6000 dollars.
Out-of-Pocket Maximum
Out of pocket is the amount of money that you pay. This includes your copays, doctor’s visits, co-insurance, deductibles, drugs, and the out-of-pocket maximum is your plan’s cap on how much you have to personally pay towards your healthcare costs. After you hit that maximum, 100 percent is covered by your insurance.
Family Out-of-Pocket Maximum
Based on what individual yearly out-of-pocket is, the family out-of-pocket maximum is the cap on the medical costs for a whole family.
The Three Levels of Healthcare Costs
You start in level one, paying basically everything out of pocket, that is, until you reach your deductible. Then you go to level two, where you are splitting the cost with your insurance company through co-insurance.
If your medical expenses get so high that the total of what you paid reaches your yearly out-of-pocket maximum, you move to level three, where all further healthcare expenses for the rest of the year are 100 percent covered by your insurance plan. When your plan resets for the year, you start back at the beginning. Usually this happens on January 1st, but some plans differ on their reset date.
If you are still feeling unsure about what this all means, or about your financial responsibility for your covered services, your local healthcare facility can often help you obtain and understand this information, especially when considering an upcoming service or appointment.
FAQ
What is a premium?
Your premium is like a monthly subscription fee. This is how much you pay each month to keep your insurance active. You pay this even if you never go to the doctor.
What is a deductible?
Your deductible is the amount you have to pay in a given year before your insurance pays anything. It is an annual amount that resets each year, often on January 1st.
What is a copay?
Your copay is a set cost that you pay for a covered healthcare service, such as a doctor’s visit or prescription. It may or may not apply before you meet your deductible, depending on your policy.
What is co-insurance?
Co-insurance is the shared cost between you and the insurance company after you meet your deductible. For example, you might pay 20 percent while the insurance pays 80 percent.
What is the out-of-pocket maximum?
The out-of-pocket maximum is the cap on how much you have to personally pay towards your healthcare costs in a year. After you hit it, insurance covers 100 percent of further covered expenses. There is also a family out-of-pocket maximum.
Conclusion
Health insurance has three levels of costs. You start by paying everything out of pocket until you meet your deductible. Then you share costs through co-insurance until you reach your out-of-pocket maximum. After that, insurance covers everything for the rest of the plan year. Understanding premiums, deductibles, copays, co-insurance, and out-of-pocket maximums helps you choose the right plan and know your financial responsibility. Contact your insurance company or healthcare facility for details specific to your policy.
