Understand Your Health Insurance Costs
The price of your health insurance is more than just your premiums. To choose a health insurance plan, you must understand the different health insurance costs: your deductible, coinsurance, copayments and out-of-pocket maximum amount have a big impact on your total spending on health and medical care.
Published December 20, 2020.
Your health insurance covers your medical expenses when you’re sick, such as doctor’s visits, healthcare providers services, hospital care, medications and equipment. It also covers you when you’re not sick: your health coverage pays for important immunizations, medical screening and annual check-ups.
When choosing a health insurance plan, it’s important to think about your total health care costs, and understand the cost sharing provisions of your plan. Other amounts, such has your deductible, out-of-pocket maximum, coinsurance or copay, also have a big impact on your total spending on health care – sometimes more than the premium itself.
A health insurance premium is a monthly charge you pay to your health insurance provider to keep your coverage. The insurance premium is to be paid every month, whether you have used your medical insurance or not, and is not included in your deductible, maximum out-of-pocket, copayment or coinsurance. If you fail to pay the premium, you could lose your insurance coverage.
The amount due can either be the complete premium or only a portion of that premium not covered by government financial assistance, should you qualify.
You can reduce the amount of your monthly premium payment by increasing your deductible, copay, coinsurance or maximum-out-of-pocket amount.
Health Insurance Deductible
If you need medical care, your health insurance plan may require that you pay a deductible. Your deductible is the amount you pay out of pocket before your health insurance kicks in and starts paying for healthcare services. Deductible prices vary by plan.
For example, if you have a $1000 deductible, your insurance won’t pay for any covered medical care services until you’ve reached this amount. If you had a $4,000 surgery, you will pay the first $1,000 and the remaining $3,000 will be covered by the insurance (all or part of it).
The deductible may not apply to all services: some expenses, like an annual well-being visit or some medical screenings might not be subject to the deductible. More details should be available in your summary of coverage and benefits.
In general, health plans with lower monthly premiums have higher deductibles.
Health Insurance Coinsurance and Copay
Copay and coinsurance are two different cost sharing provisions for your health plan.
A copayment or copay is a fixed amount you are required to pay as your share of the cost for a medical service, like a doctor’s visit, hospital outpatient visit, or prescription drug. A copay is usually a set amount, rather than a percentage: you may have to pay $15 or $25 for a doctor’s visit, lab work, or prescription.
For example, your doctor’s visit fee is $100, and your copay for an in-network doctor visit is $20. If you’ve already reached your deductible amount, you only pay $20 for the doctor’s appointment, usually at the time of the visit. If you haven’t met your deductible, then you must pay $100, the full amount for the visit.
Copayment amounts vary depending on your insurance plan and the type of visit or service: you might have a higher copay for visiting a specialist instead of your primary care physician. On the other hand, some services like most preventive care do not require a copay.
Coinsurance is the amount you are required to pay as your share of the cost for a covered medical service, calculated as a percentage of the cost for the service.
If you have a 20% co-insurance and have met your deductible, you and your insurer will split the costs of health care services: 20% for you and 80% for the insurance. For your $100 doctor visit, you will pay $20 and the insurance will cover the remaining $80.
Similarly to copay, not all services are subject to coinsurance: most insurance plans provide free preventive care, which are 100% covered by your insurer.
Health Insurance Out-of-Pocket Maximum
The out-of-pocket maximum or limit is the most you have to pay in a year before your health insurance starts to pay 100% for covered health benefits.
Deductibles, coinsurance, copayments, and any other expense for required qualified medical services count toward the maximum out-of-pocket amount, but it doesn’t include monthly insurance premiums or spending for non-essential health benefits.
The maximum out-of-pocket amount for Marketplace plans varies, but can’t go over a set amount each year (source: healthcare.gov). The out-of-pocket limit for a 2021 plan year can’t be more than $8,550 for an individual and $17,100 for a family. For the 2020 plan year, the out-of-pocket limit can’t be more than $8,150 for an individual and $16,300 for a family.
These are upper limits, but your plan may have a lower out-of-pocket maximum.
Once you’ve spent this amount on deductibles, copayments, and coinsurance for in-network covered health care and services, your health insurance will pay 100% of the costs of covered benefits
A Final Example
Let’s say you have a serious medical condition and your medical bills for covered services add up to $12,000 for the year.
First, you will have to pay the full deductible amount, $3,000.
Then you’ll pay 20% of the remaining $9,000 – your coinsurance – which amounts to $1,800.
This adds up to a total out-of-pocket amount of $4,800 so far: your $3,000 deductible plus your $1,800 coinsurance.
If you get more medical expenses, you will have to keep paying 20% of all costs until you reach your maximum out-of-pocket limit. Once your total out-of-pocket costs reach $6,850, the insurance will pay for all covered services for the rest of your plan year
Before you buy a health insurance plan, it’s important to think about your and your family’s total yearly health care needs to make sure you’re covered for the planned medical care as well as the unexpected.