This is part 1 of a 2-part series. To see part 2, click here.
When Colorado’s Health Insurance Marketplace opens later this year, many people will become first-time purchasers of health insurance for themselves or their families.
Health insurance policies can be very overwhelming! To begin assessing a policy, start by breaking the health plan benefits into two separate parts: cost and coverage. For this article, we will focus on determining the costs which includes the premium, deductible, coinsurance, copay, and out-of-pocket max.
We also have an article on assessing coverage, once the costs are clearer. Find it here.
Below is an example of an electronic high-level benefit plan summary. Depending on the resource, the format may vary, but the wording will be the same.
(Keep in mind this is a general understanding of benefits, talk to your insurance provider regarding specific policies or questions.)
When determining whether a health insurance plan is financially viable, start by researching the following questions:
What is the plan’s monthly premium? The premium is the monthly payment to a health insurance company for coverage, see “monthly cost” above. It is often the most consistent financial commitment of health insurance. Think about the monthly premium like a gym membership, it is due monthly, whether you use the benefits or not. Typically, the more you pay upfront, the lower other costs will be when using the policy. Let us look at what these other costs are, and then how to balance the financial commitments.
What is the plan’s deductible? The deductible is the amount a consumer must pay each year before insurance will start to cover expenses. In the example above, the deductible is $2,500. This means that the first $2,500 of care for, say, a broken ankle or a serious illness would be the individual’s responsibility. Exceptions include fully-covered care like preventative services. Copays are also different, and often do not contribute to the deductible. Because deductibles are the costs for using health care, high deductibles usually result in lower monthly premiums.
What is the plan’s coinsurance? Co-insurance is the percentage of costs insurance will cover after the deductible is met. Some plans cover all expenses once the deductible is met; others require coinsurance until the out-of-pocket maximum (see below) is met.
For the example above, this plan has a $2,500 deductible and the coinsurance is 30%. This means after the annual $2,500 is met, the insurance company would pay 70% of all future medical bills until the out-of-pocket maximum is met. Once the out-of-pocket maximum is met, the insurance would cover everything.
Exceptions to this rule are usually specified in the plan details.
What is the out-of-pocket maximum? The out-of-pocket maximum is the highest annual dollar amount that an individual or family may pay for health care related services.
The out-of-pocket maximum for the example above is $3,000 and does not include the deductible (not listed on the image). This means that after an individual meets the $2,500 for the deductible, all medical expenses would be subject to either the specified copay (see below) or the 70/30 coinsurance (see above) until an additional $3,000 has been covered. The total amount spent on health care expenses in a year, at maximum, would be $5,500.
There are often exceptions to the out-of-pocket max rule which will be specified in the plan details.
Be aware that each insurance company details out-of-pocket maximums differently. Some list the total out-of-pocket max including the deductible, while others (like the example above) just list the fee beyond the deductible. Also, copays do not always count towards the out-of-pocket maximum; this exception will be listed in the plan details.
Does the plan have copays? A copay is a set dollar amount for specific health care services. For care that has a copay, once the copay is paid, the individual is responsible for no other charges. Typically the copay fee is due at the time of services. Not all plans include copays.
From the example above, a $35 copay is due for any office visit. So for every regular doctor’s visit (for strep throat, for example), the individual would pay $35. Plans often have different copays depending on the type of visit. Copays for visiting specialist office vs. a primary care office visit might be different.
Prescription drugs typically have copays.
Copays often do not apply toward a deductible. In other words, paying $35 for a doctor’s visit does not contribute $35 toward the $2500 deductible.
Copays are only for the service specified. Often other services might be included in the visit, such as lab tests or procedures. This is often confusing, check with your insurance company about what is – and isn’t – included in services with a copay.
Balancing the monthly costs and cost-of-use is important. A healthy individual that only needs a policy for covered preventive care and catastrophic care might benefit from a lower premium that saves money upfront (but would be very expensive if care was needed). For another individual planning to use health care regularly (pregnancy, chronic illness, daredevil kids, for example) with major medical expenses likely in the coming year, a higher premium often lowers the deductible and out-of-pocket maximums, making it a better long-term financial choice.
There is a common misconception that a monthly premium is the only cost an individual will have when they purchase health insurance. This is rarely the case. Understanding the deductible and co-insurance will help you make a financially sound decision. To learn more about choosing health care coverage look for the article “Questions to Ask When You Shop for Coverage.”