Health insurance plans have all kinds of provisions, some of them straight forward, some of them really complicated. Three of the most common—and most likely to affect us at some point—the copay, deductible and coinsurance provisions. All three require us to pay something in addition to our health insurance premiums and that’s why we need to know what they are and how far they go.
Health insurance companies impose these provisions as part of a risk sharing strategy. That is, by having us as the insured share in the cost of our healthcare it lowers exposure—or risk—to the insurance companies. That enables insurers to keep health insurance premiums lower than they would otherwise be. The higher your plan’s copay, deductible and coinsurance, the lower your premiums will be.
Many times we balk at the idea of these risk sharing arrangements, but the cost of not having them in terms of premium charges would put health insurance beyond the reach of millions of people.
Most of us have a basic understanding of copays because we pay them any time we use any kind of health care. Technically speaking, it’s the first dollar costs we pay in connection with receiving any type of healthcare. Anything above the copay is covered by the health insurance provider.
With most health insurance plans, there are various copays. You can, for example, have a $40 copay for a simple doctor visit, or $100 copay for a minor surgical procedure or an emergency room admission.
There are also prescription copays, and there can be several of these as well. You might have a copay of $15 for a generic prescription, and $30 for a name brand drug. Some health insurers have a third copay for non-formulary prescriptions (prescriptions that are not on its approved list). They may increase the copay to, say, $60, or they may require that you pay the entire cost out of pocket.
Most of us are OK with copays because a) in the grand scheme of healthcare costs, they’re pretty low, and b) they’re a flat amount with no strings attached.
The same can’t be said for the copay’s two larger cousins.
For the most part, deductibles are pretty well understood by most people, but there are complications that make them somewhat more mysterious than copays.
Like copays, deductibles are a flat amount—that’s simple enough. You have a deductible of, say $1,000, which means that you’ll be on the hook for the first $1,000 of healthcare costs before your insurance company will begin paying claims. But deductibles can be complicated by the fact that you don’t have a single deductible, but usually at least two. Most people don’t find out about this until they file a claim.
When we talk about deductibles we usually talk about the first one, “The Deductible”—which is an individual deductible. Just beneath this there is also a family deductible, which is generally two to three times your individual deductible. Let’s say your individual deductible is $1,000; if you’re married and/or have a family, you’ll also have a family deductible of $2,000 to $3,000.
If one person in the family maxed out the individual deductible of a $1,000 and another family member began filing claims, they’d also have to meet a $1,000 deductible before the insurer will begin paying on the claim. This is just one reason why you may have to bill pay medical costs that exceed your deductible—the family deductible that is activated when a second member of the family begins filing claims.
Still another complication is uncovered expenses. Claims filed for uncovered expenses don’t count toward the deductible so even though you pay them, they don’t get you any closer to meeting the deductible. For this reason, contact your insurance company yourself to determine if a treatment is covered and never rely on your health insurance provider to do it for you!
This is the one that is the most complicated, not the least of which because most people don’t even know it exists. It’s extremely common with private health insurance plans and another way insurance companies keep premiums down.
Coinsurance is shared responsibility for the cost of healthcare, and is expressed as a percentage split. The most typical coinsurance percentage splits are 80-20 and 70-30, which means the insurance company will pay 80% of costs in an 80-20 split (70% for a 70-30), and you as the insured will cover 20% (30% for a 70-30).
The percentage split will begin once you’ve met the deductible, and will be applied to healthcare expenses that exceed the deductible. It will end once you’ve met the policy’s “stop loss”, after which the insurance company will pay 100% of costs.
Confused? Let’s do an example to illustrate how it works.
Let’s say you have a health insurance policy with a $1,000 deductible, an 80-20 coinsurance provision, and a $3,000 stop loss. You incur health insurance expenses during the year for $20,000, here’s how it will work:
- You will pay 100% of the deductible, or $1,000
- You will pay 20% of the next $10,000 in expenses beyond the deductible, or $2,000 ($10,000 X 20%), the insurance company will pay $8,000 ($10,000 X 80%)
- Since your $3,000 stop loss has been met by the payment of $1,000 for your deductible, plus $2,000 for your share of coinsurance, the insurance company will pay 100% of the remaining costs, or $9,000
- For your $20,000 in healthcare expenses, you will pay $3,000—the amount of your stop loss—while your insurance company will pay $17,000
It would be great if your insurance company would pay all $20,000, but that kind of coverage is prohibitively expensive.
(Please see the updated 20 Part-time Jobs With Health Insurance post for the most current list of employers who offer health coverage for their part-time staff.)
It’s also important to know that while insurance companies use copays, deductibles and coinsurance to lower the cost of premiums, you do have considerable flexibility in how you arrange them within a policy. You can, for example, decide that you want to trade a higher deductible for eliminating the coinsurance provision and having the insurance company pay 100% of expenses once you’ve met the deductible.
How you will arrange this will depend on how much money you will save for making such changes. But the most important consideration is making sure that you have sufficient coverage for the biggest health claims, at the most reasonable premium.
Were you aware of all of these health insurance policy provisions?