When shopping for the health insurance plan that’s right for you, there are many details to keep in mind. While premiums and benefits are probably on the top of the list, there are other components of your health insurance policy that should be considered to avoid unplanned out-of-pocket expenses down the road.
Virtually any medical insurance plan is going to include some out-of-pocket costs. Coinsurance, copays and deductibles are the most common. Each one can impact your total healthcare costs. Knowing what they are — and what they aren’t — can help you choose the health insurance plan that’s right for you.
Here’s a quick look at the main three out-of-pocket costs you’ll encounter when reviewing your health insurance policy. We’ll talk in more detail about what they can mean for you later.
- Deductible: the amount you’ll pay for your healthcare before your insurance benefits kick in.[0]
- Copay (or copayment): the fixed amount you may pay for a covered health care service after you’ve paid your deductible.[1]
- Coinsurance: the percentage of healthcare costs you owe after your insurance company covers its share.[2]
Deductible
Deductible: The amount you pay for medical care and services before insurance benefits kick in.[3]
When deciding on medical coverage, you may select a higher deductible amount to get a lower monthly premium cost.
If you typically use a minimal amount of healthcare, you may opt for a higher deductible to try to save on premium. Those who use healthcare regularly (for instance, if you have a chronic medical condition or if you plan to start a family) might opt for higher premiums and a lower deductible.
As a point of reference, the average employer plan deductible for an individual in 2019 was $1,655.[4] For private plans, the average deductible for an individual with an unsubsidized ACA Marketplace Silver plan in 2019 was $4,375.[5]
It’s important to remember that your monthly premium generally does not count towards your deductible.[6]
ACA-qualifying major medical insurance plans include preventive care such as annual physicals, screenings, mammograms and immunizations. That means that these services are generally not subject to your deductible, and your insurance covers them 100% even before your deductible amount is reached.
Copays are often included with preventive care, however, so you’ll still be paying something out of pocket for the doctor’s office visit.[7]
Do you have a high deductible health plan?
A high-deductible health plan (HDHP) has a higher deductible than a traditional insurance plan, but the monthly premium is usually lower. You pay more (your deductible) before your insurance benefits kick in.
In 2018, 39% of large employers only offered high-deductible plans (up from just 7% of employers in 2009), according to Bloomberg.[8] Half of all workers now have a health insurance deductible of at least $1,000 for an individual.[9]
Find out what you can do if your employer has a high deductible health plan.
According to the Commonwealth Fund, in 2018, even though more Americans had insurance, 23% were underinsured (meaning they are struggling to pay medical bills or skilling healthcare because their out-of-pocket costs are too high relative to their income), compared to only 9% in 2003.[10]
Find out what you can do if you have a high deductible ACA insurance plan.
Get help with a high deductible health plan with medical gap insurance. Gap insurance is a supplemental insurance policy that works alongside your major medical coverage by providing a fixed, lump sum benefit for covered medical services.
You can assign these benefits however you prefer, but many people choose to use them towards their major medical policy’s deductible.
Get Medical Gap Policies + Quotes
Copay
Copay (or copayment): the fixed amount you may pay for a covered health care service after you’ve paid your deductible.[11]
Typically you’ll be required to pay a set amount when you receive medical care. For example, you may be asked for a copay during a routine doctor’s office visit, at the urgent care and ER or when filling a prescription drug.
The amount of each copay will likely be printed on your health insurance card and will vary for different services. For example, a doctor’s visit may be $35; a trip to the ER, $100 and a generic medication, $5.
Most insurance plans don’t count your copays toward your health insurance deductible, but some do so it’s worth checking.[12]
Once the medical service you received has been billed to your insurance carrier, you could still be responsible for a portion of costs if your deductible hasn’t yet been met.
If you have met your deductible amount for the year, then you’ll likely still be paying something out of pocket in the form of coinsurance.
Coinsurance
Coinsurance: the percentage of costs of a covered healthcare service that you pay after you’ve reached your deductible.[13]
This out-of-pocket cost may get lost in the shuffle a bit when discussing and comparing health insurance plans, but your coinsurance rate can impact your total out-of-pocket costs should you need to use your benefits.
When you’re comparing plan costs, you’ll usually see coinsurance indicated as a percentage like 80/20. The first number is the percent of the covered medical service that the insurance company pays and the second number is the percent you pay.
For an “80/20” coinsurance rate, the insurance company pays 80% of covered expenses and you pay the remaining 20%.
Coinsurance payments are typically required after you’ve hit your annual deductible. You pay coinsurance until you reach your out- of-pocket maximum amount. Once you hit your annual out-of-pocket maximum the insurance company should pay for 100% of covered services.[14]
What’s a “normal” coinsurance rate?
Coinsurance rates can range, often depending on a plan’s deductible, from 50/50 to 100/0 for high deductible plans.[15] The average coinsurance rate in 2018 for group plans was 18%.[16]
80/20 is a relatively common coinsurance rate.
Out-of-pocket maximum
Out-of-pocket maximum: the most you have to pay for covered services in a plan year.[17]
The out-of-pocket maximum generally refers to what you’ve paid out of pocket toward covered medical expenses, including deductible, copayments and coinsurance payments. Your premiums don’t count toward the maximum. Once you hit that amount, health insurance plans will typically pay for covered services 100%.[18]
The Affordable Care Act (ACA) has set a limit on out-of-pocket maximums. For 2020, the maximum out-of-pocket for an individual is $8,200 and $16,400 for a family. But many health plans have lower maximums.[19]
If you receive medical care that’s not covered by your health plan, you’ll have to pay the full cost of the treatment AND it won’t count towards your policy’s out-of-pocket limit. For instance, if your plan doesn’t include dental or vision care, what you spend at the dentist or eye doctor won’t count toward your maximum.[20]
If you use out-of-network providers, your out-of-pocket costs can be considerably higher than the in-network limits and aren’t affected by the ACA rules. With some plans, your out-of-network maximum might be double the in-network limit. With other plans, there is no out-of-pocket maximum for out-of-network care.[21]
How Deductible + Out-of-Pocket Maximum Work Together [Example]
Still confused about the difference between your deductible and out-of-pocket maximum? Let’s look at an example with real numbers.
If your health insurance plan has an annual deductible of $1,500, that means you need to have paid at least $1,500 worth of medical bills out of pocket before any insurance benefits kick in.
Once you hit your deductible, you’ll still be responsible for your co-insurance. Let’s say your coinsurance rate is 20%. That means you still have to pay 20% of every medical expense you have, until you hit your out-of-pocket maximum.
So, if your deductible is $1,500 and your out-of-pocket maximum is $5,500, the steps look like this.
- Up to $1,500 (deductible) – you pay all your medical expenses
- $1,500-$5,500 – You pay 20% and your insurance pays 80% of covered medical expenses
- $5,500+ (out of pocket max.) – insurance pays 100% of your covered medical expenses
Let’s compare two different insurance plans, one with a high deductible, to see the out-of-pocket expenses.
The following comparison uses a $50,000 covered medical expense to illustrate how deductible and out-of-pocket maximum can impact total out-of-pocket costs.
| Regular Health Plan | High Deductible Health Plan | |
| Deductible | $1,300 | $4,000 |
| Co-insurance (80/20) | Insurance pays 80% and you pay 20% of the remaining $48,700.
Your 20% = $9,740 | Insurance pays 80% and you pay 20% of the remaining $46,000.
Your 20% = $9,200 |
| Your out-of-pocket maximum | $5,500
So insurance picks up $4,240 of the $9,740 | $7,900
So insurance picks up $1,300 of the $9,200 |
| Total cost to you | $6,800 | $11,900 |
Other Options to Help with Out of Pocket Costs
We’ve discussed the out-of-pocket costs relating to your insurance policy in detail. As you can see, what you select when you enroll can make a difference in what you pay if and when you need to use your major medical health insurance policy.
However, you can only control for these out-of-pocket expenses so much. Are there other options to help with the costs you pay out of pocket for medical care? There may be.
- Open an HSA if you have a high deductible health plan that qualifies.
- Make sure to stay in your health plan’s network when seeking medical care.
- Telemedicine may help if you don’t live near your plan’s network hospitals and providers. (Telemedicine is not insurance.)
- Health and medical discount plans can help you save on healthcare costs, like chiropractic care and acupuncture treatments. (Discount plans are not insurance.)
- A medical gap, hospital indemnity or critical illness insurance policy could help provide additional benefits for covered medical expenses, which can be used to pay down your major medical policy deductible.
- Consider dental insurance coverage if it isn’t included in your medical policy.
Summary + Next Steps
Coinsurance, copays, and deductibles can each affect your total healthcare costs. Understanding how they’ll impact you can help you choose the right health insurance policy.
If you need help finding health insurance to meet your needs, contact us as (888) 855-6837 to speak with an agent.
