Health Insurance: Understanding Your Deductible, Co-pay, Out-of-Pocket Maximum and More
Have health insurance? You may have come across terms like deductible, premium, out-of-pocket maximum, co-pay, and co-insurance. Understanding what they mean, and the amounts your policy requires can help you manage and budget for healthcare expenses and choose the best healthcare plan for you.
When you enroll in a health insurance plan, either for yourself at a site like eHealthInsurance, or through your employer, you pay either monthly or each pay period for your healthcare plan, but you will also owe some money when you use healthcare services. When you’re healthy, it’s easy to simply compare healthcare insurance plans based upon the monthly cost (the premium). But you must understand what the other variables of healthcare policies mean if you want to select the plan that’s going to be most economical for you when you actually start using healthcare.
There are several health insurance terms to understand:
- Premium
- Deductable
- Co-pay
- Co-insurance
- Out-of-pocket maximum
Your premium is the amount you pay into the insurance plan on a regular basis. If you belong to an employer-sponsored plan, the premium is likely deducted from each paycheck as pre-tax dollars. If you purchase your own health insurance plan, you may have the option to pay your premium annually, quarterly, or monthly. Health insurance premiums vary greatly depending on what medical expenses the plan covers, which doctors you can see, and how much you will have to pay in other ways when you use services.
Your health insurance deductible is the amount that you will have to pay for a claim (such as a surgical procedure or hospitalization, but not routine office visits) before the health insurance pays anything. For example, if you have a $100 deductible and undergo a $1,000 procedure, you will have to pay $100 and the insurance company will pay $900. Increasing your deductible is the easiest way to reduce how much you pay for your premium, although you will be responsible for paying more if you use healthcare services.
Your co-pay is the fixed amount you pay for using routine services like visiting your primary care physician or an emergency room or purchasing a prescription drug. In most cases, the payment is the same regardless of the extent of the visit or the cost of the drug. For example, a plan may require co-pays of $20 for office visits, $100 for emergency room visits, and $15 for generic prescriptions or $30 for name-brand drugs.
Co-insurance is similar to a co-pay, although co-insurance generally applies to less routine expenses, and is expressed as a percentage rather than a fixed dollar amount. Co-insurance is in addition to your deductible. So if your plan has a $100 deductible and 30% co-insurance and you use $1,000 in services, you’ll pay the $100 plus 30% of the remaining $900, up to your out-of-pocket maximum. You may find plans with no co-insurance requirements, some with 20/80 or 50/50 coinsurance, or other combinations.
Your out-of-pocket maximum is an important feature of your health plan because it limits the total amount you pay each calendar year for healthcare including co-pays, deductibles, and co-insurance. If your policy carries a $2,500 out-of-pocket maximum and you get sick and require a lot of healthcare services, the most you will pay in a year is $2,500. After that, insurance picks up the rest of the tab.
Millions of uninsured Americans declare bankruptcy due to medical expenses every year. That’s why carrying health insurance consistently is one of the most responsible financial decisions you can make. Even if you’re young and healthy, you never know what could happen. If you don’t have health insurance through your employer, consider purchasing your own plan through the online insurance marketplace eHealthInsurance. Many low cost plans exist that will protect you in the event of a catastrophic accident or illness.
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Published on February 20th, 2009.
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Thank you. This was very direct and very helpful.
This still is not really clear about out-of-pocket. In my case, the insurer says I have to spend $3,000 before they pay anything. Aren’t they supposed to pay their share after the deductible is met? How do they figure their share to be paid?
Sofia, this is how the co-pay, deductible and co-insurance are being stacked:
- you pay co-pay for any doctor visit; of no other procedures were involved that will be it; the insurance and their arrangement with the doctors/hospital network will take care of the rest;
- some plans will include zero co-pay and 100% co-insurance (the insurance co pays all) for selected services like mammograms and pap smear tests etc. so these do not cost the insured co-pay or else;
- you pay up to the deductible amount for any procedures like special tests, treatments, surgeries etc.; That is why a higher deductible may not be that bad since you only pay in to it’s amount in case of more serous needs, not going to the doctor etc.
- after the deductible is paid any further costs are split between the insurance co and the insured; if the co-insurance arrangement is 80/20 for example, the ins. co pays 80% and the insured 20% of any claims.
- where the out of pocket limit kicks in is when the insured while paying these 20% (and in some cases all co-pays, and deductibles) reaches the out of pocket amount (also referred to as stop-loss for the insured), after that the insurance company pays all.
It ls very complicated but the structure gives the ins company the ability to offer flexible plans for different needs.
Insured individuals can pick deductible, out-of-pocket amounts, annual and life time limits etc.
Hi,
Is it possible to request the cancelation of my individual plan deductible that my employer offered me ? I know the answer might be obvious but I am confused because I was not expecting such a high deductible.
I am very disappointed…
thank you,
Ray
I thought the deductible was $155.00, but I have already paid $186.46, and I received another bill for $78.83. When does it end?
I don’t think it ever does!! I have the same problem. Now I’m thinking that I didn’t know to consider co-insurance which apparently takes an additional percentage above the deductible….I would love to know if I am correct….