Aside from premiums, the actual cost of Insurance you pay your insurer, there exist other expenditures arising out-of-pocket – Co-pays, Co-insurance, and Deductibles.
Understanding these is key to deciding which risk carrier to opt for to manage your health plan as ultimately, they will determine how much you spend towards your plan and even the quality of service you receive.
Co-pays – short for Co-payments – are the flat fees charged for hospital visits and medical prescriptions. Within your plan, there exist different rates for hospital visits, and sometimes, even free charges for certain check-ups.
Co-pays, unlike other out-of-pocket expenses, are charged directly by your health care provider, typically before the service is rendered.
Depending on the health provider you visit, whether an in-network or an out-of-network, a fee will be charged for each appointment. In the case of the former, however, the rate will be much cheaper. Co-pays for out-of-network visits may be much higher or might have you responsible for the entire bill.
Co-pays are usually fixed at a reasonable tier where they are not pricey enough that people wouldn't be able to afford them, nor cheap enough to deter one from unnecessary hospital visits.
Though the fees are usually predefined by your insurance provider, amounts do vary with the services that are covered within your plan, the type of doctor you are seeing, and whether or not you’ve reached your deductible.
Take Emily, for instance, who's had a fracture in her leg. She decides to visit her in-network physician where she is charged a $30 fee for the visit. The doctor recommends she sees an out-of-network orthopaedist who charges $100 for a visit and $400 for an X-ray scan. Luckily, her plan stipulates only a $50 co-pay for out-of-network visits and $150 for X-rays.
Emily’s out-of-pocket expenses, so far, will be $230 ($30+$50+$150) instead of the whole $530($30+$100+$400) she would have had to pay without her insurance plan, thereby saving $300 in medical costs.
A deductible is a fixed amount of health care expenses you are required to pay out of pocket before your plan takes over. For instance, if you have a $2,000 deductible, you must pay up to $2,000 for your care out of pocket before your medical plan accommodates its portion of expenses.
Deductions will reset yearly, meaning each year you make a claim, you’ll have to pay the full predefined amount. Essentially, you’ll be starting at zero at the start of each year.
Deductibles are a huge determinant of your health care cost. A general rule of thumb is that higher deductibles will be accompanied by lower premiums and vice versa.
There exist different deductibles for individuals and groups, like families, so exploring your options first before choosing an insurer is paramount as you may end up saving some bucks on either plan. For example, with an HDRP – High Deductible Health Plan –, the IRS defines its deductible to be at least $1400 for an individual or $2,800 for a family.
Back to Emily, her deductible stands at $2000. Medical costs for her fracture, ensuing her co pays, will be discounted when she visits her in-network or be paid in full when she gets treated out-of-network.
If her medical bills require a surgical treatment worth $15,000, she will have to pay the invoiced amount up till her deductible’s limit to kick-start her insurance plan.
Her out-of-pocket, so far, will be $2230, consisting of $230 co-pays and a $2000 deductible.
Co-insurance is the portion you pay towards your medical coverage once insurance kicks in. Simply put, it is the percentage of bills you pay after meeting your deductibles.
You’ll therefore be splitting bills with your insurer according to a fixed percentage – your Co-insurance rate – which will differ depending on the health insurance plan.
Similar to a deductible, your co-insurance is paid after the healthcare service has been administered. A common applicable rate is 20% or an 80/20, meaning you’ll owe 20 percent of your medical bills, with the remaining 80% taken care of by your insurer.
Your health provider will bill you after the invoice has been sent to your insurer, for a definitive answer on what you owe. Like with other out-of-pocket expenses, there are incentives, often discounts, when visiting your in-network providers as opposed to your out-of-networks.
Since Emily’s payments out-of-pocket have already reached her deductible, the remaining portion of her surgical bills – $13,000 ($15,000 minus her $2000 deductible) – will be covered by her insurance plan.
With her Co-insurance rate being 20 percent, she will have to pay $2600 (20% of $13,000) towards her bills, while her plan pays the remaining $10,400 ($13,000 – $2600).
Her out-of-pocket expenses will now total $4830 (consisting of $230 Co-pays, a $2000 Deductible, and a $2600 Co-insurance)
Most medical plans will also stipulate a limit to what you pay out of pocket. This means that once you reach a specified dollar amount, your insurance will cover the full cost of any insured medical expenses for the remainder of that policy year.
Though it does have some exclusions, including your premiums, out-of-network expenses, and even certain substantial medical expenses like heart conditions, your out-of-pocket limit will work wonders in minimizing your annual expenses on healthcare.
If Emily’s policy stipulated a $5000 Out-of-pocket Maximum, her other insured medical bills occurring later within her policy year will only cost her the remaining $170 ($5000 - $4830) – excluding further co-payments.
A realistic health insurance plan needs you to strike a balance between your budget and your
If you’re in good health and don’t visit a doctor often, you should opt for healthcare plans with higher deductibles as they typically have lower premiums.
Moreover, you should consider plans that have lower deductibles and co-insurance, if you expect more than just routine care or have a prevailing medical condition to better manage your bills.