Health care costs are confusing, not least because there are many different types of costs. A monthly premium almost never covers the cost of all care. It is important to understand what costs you will be responsible for if you need medical care.
The first step to understanding what costs you, as a patient, are responsible for is to understand how deductibles and coinsurance work together.
The deductible is the cost that a patient pays for most medical procedures before the insurance company covers costs.
Co-insurance is the percentage of medical costs a patient pays after they meet their deductible, until they meet their out-of-pocket maximum.
Both are annual costs, so they are the amounts the patient is responsible for each year.
Understanding this distinction between deductibles and coinsurance is easiest with an example.
Let’s say an individual named James needs to have a total knee replacement, a procedure that is going to cost $25,000. His doctor is in-network and his plan covers the surgery. His deductible is $1500 and his co-insurance is 30% with an Out-of-Pocket Maximum of $5000.
|Payment Steps||James Payment||Insurance Payment||Total balance (costs beginning at $25,000)|
|1. Deductible||$1,500||$23,500 balance|
|2. Coinsurance (Insurance payment)||70% of $23,500: $16,450||$23,500-$16,450 =
|3. Coinsurance (James Payment)||30% of $23,500, limited to his out of pocket (OOP) maximum. So instead of the full $7,050, he will pay until he satisfies is OOP of $5000: $3,500||$7,050 – $2,500 =
|4. Insurance payment of balance||100% of costs after out of pocket maximum is met: $3,550|| $3,550 – $3,550=
|Payment Totals||$1,500 +$3,500 = $5,000 (his out of pocket maximum)||$16,450 + $3,550 = $20,000||$25,000|
In this instance, James meets his deductible first. Then the co-insurance, where James and the insurance company share the costs, begins. James meets his out-of-pocket maximum of $5000 before paying the entire 30% coinsurance amount. The insurance company pays the balance after he meets his out-of-pocket maximum. For the rest of the year, James has met his Deductible and Out of Pocket maximum, so the insurance company will cover costs in most medial situations.
In a less expensive example, let’s say James needs to have ACL surgery instead of a knee replacement, a procedure that will cost $6,000. His doctor is in network and his plan covers the surgery. He still has the same deductible, co-insurance and out-of-pocket maximum.
|Payment Steps||James Payment||Insurance Payment||Total balance (costs beginning at $6,000)|
|1. Deductible||$1,500||$4,500 balance|
|2. Coinsurance (Insurance payment)||70% of $4,500 ($3,150)||$4,500-$3,150 =$1,350 balance|
|3. Coinsurance (James Payment)||30% of $4,500, limited to his out of pocket (OOP) maximum of $5,000. He does not meet his OOP in this instance, so pays the full 30%: $1,350.||$1,350 – $1,350 =$0 balance|
|4. Insurance payment of balance||100% of costs after out of pocket maximum is met. Since OOP is not met yet, no balance to pay. $0.||$0 balance|
|Payment Totals||$1,500 +$1,350 = $2,850 ($2,150 short of his out of pocket maximum)||$3,150||$6,000|
In this instance, James meets his deductible but does not meet his out-of-pocket maximum. For most additional medical procedures during this year, he would pay 30% of the costs until he pays the $2,150 remaining to satisfy his out of pocket maximum.
Most medical procedures are subject to this formula, but there are exceptions. If, in your benefits description, it says “NONE” under the deductible column, the insurance company pays for that specific benefit without requiring that you meet the deductible.
A good checklist to determine your costs when you get medical care is:
o Is my provider/service/hospital in-network?
o Is the provider/service covered by my insurance plan?
o Have I met my deductible?
o How much is my co-insurance or co-pay?
o Have I met my out-of-pocket maximum?