Understanding Copays, Coinsurance and Deductibles
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Coinsurance, copays and deductibles are different out-of-pocket costs for health care, and being familiar with these terms can help you better understand your health coverage and costs. Even after you pay monthly premiums for health insurance, out-of-pocket costs can lead to high medical bills if you get sick or injured.
Here's how health insurance costs work.
Defining some health insurance terms
Before understanding how it all works together, let's brush up on some common health insurance terms.
Coinsurance is a percentage of a medical charge you pay, with the rest paid by your health insurance plan, which typically applies after your deductible has been met. For example, if you have 20% coinsurance, you pay 20% of each medical bill, and your health insurance will cover 80%.
A copay, or copayment, is a predetermined rate you pay for health care services at the time of care. For example, you may have a $25 copay every time you see your primary care physician, a $10 copay for each monthly medication and a $250 copay for an emergency room visit.
The deductible is how much you pay before your health insurance starts to cover a larger portion of your bills. In general, if you have a $1,000 deductible, you must pay $1,000 for your care out of pocket before your insurer starts covering a higher portion of costs. The deductible resets yearly.
The premium is the monthly payment you make to have health insurance.
You pay the premium each month like a gym membership, even if you don't use the coverage. If you don't pay the premium, you may lose your insurance. If you're fortunate enough to have employer-provided insurance, the company typically picks up part of the premium.
The out-of-pocket maximum is the limit of what you'll pay in one year, out of pocket, for your covered health care before your insurance covers 100% of the bill. The maximum out-of-pocket limit for marketplace health plans (those on the Affordable Care Act health insurance marketplace) is $9,100 for an individual and $18,200 for a family in 2023. (This amount doesn't include what you spend for services your insurance doesn't cover.)
Coinsurance vs. copay
Copays and coinsurance are different ways your health insurance may require you to pay for covered services. Here are the differences:
Flat fee for a particular kind of visit, like seeing your primary care doctor or going to urgent care.
The price varies, since it’s a percentage of the total cost of services, based on the final approved bill.
Paid every time you see a care provider or fill a prescription.
Billed by the care provider after insurance approves the charges and your percentage has been calculated.
May or may not count toward your deductible.
You don’t pay this until after you’ve met your deductible — up to the out-of-pocket max.
Copay vs. deductible
Your health plan may have both copays and deductibles, and whether you pay one or the other may depend on the services you receive. For some services, such as a visit to your primary care doctor, you may owe a fixed copay, such as $10 or $20. For other services, such as an MRI, you may have to pay the approved cost of the service up to your deductible.
Your copay may count toward your deductible, but it doesn't always. And you may owe copays for some services after you meet your deductible.
Coinsurance vs. deductible
Deductibles and coinsurance work together, but usually consecutively. As mentioned, the deductible is the amount you pay before your insurance starts covering the cost of your health care. Once you meet your deductible, you'll typically owe coinsurance (such as 20% of approved charges) on all additional services for the rest of the year.
You'll pay coinsurance on approved medical care until you hit the out-of-pocket maximum on your plan, after which your insurance will cover 100% of the rest of your care for the year.
How it all works together
Health insurance policies can have a variety of cost-sharing options. For example, some policies have low premiums, high deductibles and high maximum out-of-pocket limits, while others have high premiums, lower deductibles and lower max out-of-pocket limits.
In general, it works like this: You pay a monthly premium to have health insurance. Then, when you go to the doctor or the hospital, you pay either full cost for the services or copays as outlined in your policy. Once the total amount you pay for services, not including copays, adds up to your deductible amount in a year, your insurer starts paying a more significant chunk of your medical bills, commonly 80%. The remaining percentage that you pay is called coinsurance.
You'll continue to pay copays or coinsurance until you've reached the out-of-pocket maximum for your policy. At that time, your insurer will start paying 100% of your medical bills until the policy year ends or you switch insurance plans.
The catch: Your health plan's network
Here's the snag: The co-sharing scenario highlighted above works only if you choose doctors, clinics and hospitals within your health plan's provider network. If you use an out-of-network doctor, you could be on the hook for the whole bill, depending on which type of policy you have. This brings us to two related terms:
This is the group of doctors and providers who agree to accept your health insurance. Health insurers negotiate lower rates for care with the doctors, hospitals and clinics in their networks. So when you go in-network, your bills will typically be cheaper, and the costs will count toward your deductible and out-of-pocket maximum.
Out of network
A provider your insurance plan hasn't negotiated a discounted rate with is considered out of network. If you get care from an out-of-network provider, you may have to pay the entire bill yourself, or just a portion, as indicated in your insurance policy summary.
Doing the math on copays, coinsurance and deductibles
To illustrate with an example, consider a person — let's call her Prudence — who needs some health services. (Your costs would be different based on your policy, so you'll want to do your own calculations.)
Insurance coverage: Single.
Annual deductible: $1,200.
Copays: $20 per office visit, $50 per specialist, $100 per ER visit; these don't count toward her deductible.
Coinsurance: 20% after she meets her deductible.
Scenario: Doctor visits and an MRI
Prudence goes in for an annual checkup. Because she goes to an in-network provider, this is a free preventive care visit. (If it had been an office visit for a medical issue, there would have been a $20 copay.) However, her primary care physician thinks Prudence should see an orthopedist based on her physical exam. The orthopedist later recommends an MRI.
Copays for an in-network specialist on her plan are $50. The MRI provider is in her insurer's network, and the approved insurance charge is $1,000 for the MRI, including the radiologist fees for interpreting the scan.
Imaging scans like this are "subject to deductible" under Prudence's policy, so she must pay for it herself, or out of pocket, because she hasn't met her deductible yet.
Total out-of-pocket costs: $50 for the specialist copay + $1,000 for the scan = $1,050.
Scenario: Trip to the ER
Later that year, Prudence falls while hiking and hurts her wrist. She heads to an in-network emergency room, for which she has a $100 copay. After the copay, ER charges are $3,400. Her deductible will be applied next.
Prudence has already paid $1,000 of her $1,200 deductible for her MRI, so she's responsible for $200 of the ER bill before her insurer pays a larger share. Of the remaining $3,200, her health plan will pay 80%, leaving Prudence with a 20% coinsurance of $640.
Total out-of-pocket costs: $100 for the ER copay + $200 for remaining deductible + 20% coinsurance ($640) = $940.
Prudence has now paid $1,990 toward her medical costs this year, not including premiums. She has also met her annual deductible, so if she needs care again, she'll pay only copays and 20% of her medical bills (coinsurance) until she reaches the out-of-pocket maximum on her plan.
Understanding how your health insurance works can save you money and grief now and down the road.