If you're shopping for a health insurance policy, or trying to actually use your policy to get medical care, cost is likely a primary concern. You need to know not just what the premiums for your policy cost, but also what you'll actually have to pay out-of-pocket if you want to use healthcare services. Reading the policy language is key to understanding what costs you can expect to incur -- but you need to understand exactly what all of the different terms mean that are used to describe the payments you could end up owing.
In particular, there are three key costs you need to understand: deductible, co-pay, and co-insurance. Here's what each of these terms could mean to you, as far as the out-of-pocket expenditures that you'll incur.
1. What is a deductible?
Your deductible is the amount of spending required before your insurer begins to pay for any covered services. For example, if your policy has a $1,000 deductible, you will not have your medical bills covered by your insurance until after you have spent $1,000 total on healthcare that your insurer counts toward your deductible. If you underwent a $1,500 elective cosmetic surgery, the surgery would not count toward your deductible because it wouldn't be covered by your insurer -- but if you spent $1,500 on a surgery that your insurer covers, the insurance provider would begin to cover the costs of the other care you need going forward.
Your deductible resets each year, either at the anniversary date of when you got the policy or at the start of the calendar year. You may have different deductibles for different kinds of services, such as a separate deductible for prescription medications. If you met your $1,000 deductible by paying for a covered surgery but you had a separate $500 deductible for prescription meds, you'd have to pay for the prescription pain killers needed after your surgery unless you'd already paid out at least $500 in prescription drug costs during the year.
When you have not yet met your deductible, you can still get certain covered healthcare services. For example, your policy may cover the costs of an annual exam, of cancer screenings or of certain vaccines, even if you have not yet met your deductible. All plans which are sold on the Obamacare insurance marketplace cover certain preventative care services even before deductibles have been met for the year, such as diabetes screenings and HIV screenings.
The lower your deductible, the higher you can expect your premiums to be. If you do not use many healthcare services, you may wish to opt for a high deductible policy, but if you get sick often or have a chronic condition and require a lot of care, it makes more sense to pay high premiums for a policy with the lowest deductible possible.
2. What are co-pays?
Co-pays are fixed costs for health services that you must pay, even after your deductible has been met for the year. For example, your doctor may charge a $20 copay for a routine exam to diagnose an illness. If you had met your deductible already, you would only have to pay this $20 for the exam. If you had not met your deductible, you would not be charged a separate co-pay but would instead have to pay the full amount that your insurer allows your doctor to charge for an exam.
When you receive healthcare services, you may have to pay multiple co-pays. For example, you could be required to pay a $20 co-pay for the exam and an additional $15 co-pay for lab work that your doctor orders. Typically, the lower your co-pays for the services that you receive, the higher the costs of your insurance premiums. Again, it makes sense for policyholders who use more medical services to buy a policy with lower co-pays while policyholders who rarely get care may opt for a policy with a higher co-pay so they pay less in premiums but pay more each time they actually go to a doctor.
You will only have to pay a co-pay until the out-of-pocket maximum on your policy is met. For example, policies purchased on the Obamacare exchange for 2017 have an out-of-pocket maximum limit of $7,150. Once you've spent at least $7,150 on your deductible and on co-pays or coinsurance costs for covered services, you don't have to pay anything any more except your premiums. Your premiums do not count toward your out-of-pocket maximum.
3. What are co-insurance costs?
Co-insurance costs , like co-pays, are costs that you pay for covered services after your deductible has been met and until your out-of-pocket limit has been reached. However, the big difference between co-pays and co-insurance costs is that co-pays are a fixed cost for each service while co-insurance costs are equal to a percentage of the amount your health services cost. For example, seniors covered by Medicare Part B have 20% co-insurance costs for most doctor's services and many private policies also charge a similar percentage.
When you go to an in-network doctor, you're doctor is permitted to charge only a certain allowable amount for services. If your doctor is allowed to charge you $1,000 for a procedure and you have a 20% co-insurance cost, your insurer covers $800 of the procedure and you must pay the remaining 20% or $200. If your out-of-pocket limit had not yet been reached, this $200 would count toward that limit for the year.
Co-insurance costs, like co-pays and deductibles, tend to be higher if premiums are lower, and will be lower for policies with higher premiums. While Medicare recipients often purchase secondary insurance to cover their co-insurance costs, policyholders with private insurance should expect to come up with the cash for the percent of services they owe if they require healthcare.