Let’s see how it works together. If you have a $20 copay and 80/20 coinsurance, for a doctor visit that costs $180: Your copay would be $20; Your coinsurance would be $180 before your deductible is met, and $36 after your deductible is met. When you reach it, your insurer will pay for all covered services. OOPM includes copayments, deductible, coinsurance paid for covered services. However, it doesn’t include insurance premiums. OOPM = Copayments + Deductible + Coinsurance. Out-Of-Pocket Maximum in subsidized plans can be lowered by Cost-Sharing Reduction Subsidy.
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Health Insurance, like any other type of insurance, has its own terminology. It is essential to understand it because, without it, a usefulhealth insurance comparisoncannot be made. Below we explain some of the most important health insurance terms so you can make a smart and educated decision when choosing a medical plan.
Premium
Premium is the amount you pay for insurance. Premiums are usually paid in monthly or quarterly installments.
Copayment
A copayment or copay is a fixed dollar amount you pay for covered medical services or when visiting a doctor. Copayments for primary care providers (PCPs) are usually lower than for visiting specialist doctors. They typically range between $5 – $50 for PCPs and $10 – $100 for specialists. HMO plans tend to have more health care services covered by copayments than PPO plans.
Deductible
A deductible is an amount you pay for eligible medical expenses before your insurance plan starts to pay. If your plan has copayments, for example, for doctors visits or prescription drugs, it is possible you’d pay only the copayment without paying off your deductible first.
Coinsurance
After you meet your deductible, you usually pay coinsurance. Coinsurance is health care costs sharing between you and your insurance company. The coinsurance typically ranges between 20% to 60%. For example, if your coinsurance is 20%, it means you pay 20% for covered health care services, and your insurer pays the remaining 80%. The cost-sharing stops when medical expenses reach your out-of-pocket maximum.
Out-of-Pocket Maximum (OOPM)
Out-Of-Pocket Maximum or Out-of-Pocket Limit is the most you will have to pay for covered medical services in your plan year. When you reach it, your insurer will pay for all covered services. OOPM includes copayments, deductible, coinsurance paid for covered services. However, it doesn’t include insurance premiums.
OOPM = Copayments + Deductible + Coinsurance
Out-Of-Pocket Maximum in subsidized plans can be lowered by Cost-Sharing Reduction Subsidy.
Example of how a typical health insurance plan works
Let’s say you have a health plan with:
- $20 copay for doctor visits
- $1,000 deductible
- 20% coinsurance
- $2,000 OOPM
Let’s say you go to see your doctor. You pay $20 copayment, and your OOPM drops to $1,920.
Next month you have surgery, which costs $15,000. First you pay $1,000 deductible, and your OOPM drops to $920 ( $1,920 – $1,000). The remaining balance to pay for the surgery is $14,000. You pay 20% coinsurance of $14,000, which is $2,800 and your insurance company pays 80% of $14,000, which is $11,200.
Now you will not have to pay the full $2,800 because your OOPM at this point dropped to $920. Therefore, you’ll pay the $920 and the rest $1,880 ($2,800 – $920) will also be paid by your health plan.
Let’s say after the surgery you need rehabilitation. The total cost for the rehabilitation visits and consultations is $2,000. You will pay nothing because you’ve already paid off your OOPM. Your health plan will pay the $2,000.
How Do Deductibles And Coinsurance Work
The above example is just a simple illustration to give you a better understanding of how health plans may work. It assumes that all the medical services are rendered in the same plan year and are provided in your plan’s network. Out-of-network services may not be covered at all or would cost you much more.
In reality, your health insurance policy will have a different copayments, deductible, coinsurance, or OOPM.
Healthcare plans can be so difficult to understand. During this 12 part series, Understanding your Insurance, we are breaking down each segment to enable you to make more informed healthcare decisions. Last month we examined Premiums, Deductibles and Co-Pays. There are 2 more elements that are crucial to understanding the basics of your healthcare plan, Coinsurance and Out-of-Pocket Maximums.
Coinsurance
Coinsurance is your share of costs for healthcare services. Coinsurance usually kicks in once you’ve met your deductible.
Let’s say your plan has a $5000 deductible, which you’ve hit. (Hitting your deductible means that you’ve paid both your monthly premiums and $5000 towards your deductible for the year.) Now, you are going in for an office visit that costs $200.
For the sake of this example, let’s say your plan does not require a copay. And let’s also say that your coinsurance amount is 80/20, meaning once you’ve hit your deductible, your insurance covers 80% of the cost of the visit/procedure and you cover 20%.
Deductible = $5000—paid in full
Coinsurance = 80/20 (plan pays 80%, you pay 20%)
Office Visit Cost = $200
80% Coinsurance Vs 100% Coinsurance
Amount due = $40
In this example, you should receive a bill for $40 and your insurance will pick up the rest. So this means that even though you have reached your deductible, you will still incur medical costs. That is, until you reach your out-of-pocket maximum.
Out-of-pocket maximum
This number is pretty important; it is the most you have to pay for covered healthcare services in a year. This figure does not take into account services you receive that are not covered under your healthcare plan or your monthly premium. However, it does include your deductible, copays and coinsurance payments for the year. Out-of-pocket maximums usually differ between an individual and a family so make sure to familiarize yourself with your particular plan and options. People generally reach their out-of-pocket maximums during a year with high medical costs. Below is an example of how this all plays out:
Let’s say you need to have a surgery that will cost $20,000.
Your plan specifications are as follows:
- Deductible: $5000
- Coinsurance: 20%
- Out-of-pocket maximum: $7150
You pay the first $5000 of covered medical expenses towards your deductible.
Now, you owe your coinsurance amount on the rest of the medical costs of $15,000 for a total of $3000.
This brings you to a total of $8000. However, your out-of-pocket maximum is $7150. Therefore, you will only owe $2150 in coinsurance because that will get you to your out-of-pocket maximum amount of $7150. At this point, any additional covered medical costs you incur throughout the rest of the year will be covered by your insurance 100%. However, you are still required to pay your monthly healthcare premium as that is not included in your out-of-pocket maximum.
There we have the basics of healthcare costs incurred with healthcare coverage and medical visits. Next month we will explore what it means to be covered under more than one plan, or Coordination of Benefits.
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