For most Californians, the one constant with just about every type of health insurance plan are the out-of-pocket costs. While there are some individuals who are fortunate enough to have their monthly premiums covered by their employers, there are often still co-payments and share of costs required.
And the variety and variances of these out-of-pocket costs can be confusing. Here is a brief overview of typical health insurance costs.
What Are Your Out-of-Pocket Costs?
When purchasing your own health insurance plan or choosing an option through your employer, it is critical to consider other costs involved aside from the monthly premium. While a typical Millennial in great health may rarely, if ever, need to use their insurance others may make use of it regularly.
And that’s when these other out-of-pocket costs kick in.
[These definitions have been adapted from those provided by the U.S. Centers for Medicare and Medicaid Services]
Premium
This the most familiar cost for most people and is the amount you pay for your health insurance each month. If you have a Marketplace health plan through Covered California, you may qualify for lower costs with a premium tax credit.
When shopping for a plan, choosing the lowest monthly premium may not be the best fit for you. For example, if you and your family make regular or consistent use of health care services, choosing a plan with a slightly higher premium but a lower deductible can likely save you money.
Deductible
A deductible is the amount you must pay for covered health care services before your insurance plan starts to pay. This arrangement is very similar to what most of us have with our auto insurance. For example, if your plan has a $3,000 deductible, for example, this means you must pay the first $3,000 of covered services yourself.
However, after your deductible is paid during the coverage year, you usually pay only a copayment or coinsurance for covered services and the insurance company pays the rest. In addition, many plans pay for certain services such as checkups or disease management programs before you’ve met your deductible.
Family plans often have both an individual deductible, which applies to each person, and a family deductible, which applies to all family members. This means you have separate deductible totals to keep track of. Some plans also have separate deductibles for certain services like prescription drugs.
Often, the plans with lower monthly premiums have higher deductibles, while those with higher monthly premiums usually have lower deductibles.
Copayments
This is another common out-of-pocket cost that most people are familiar with. This is usually a fixed amount, often in $5 to $35 range, that you are required to pay for a covered health care service. Note that co-payments kick in after you’ve paid your deductible.
Let’s say your health insurance plan’s allowable cost for a doctor’s office visit is $150. Your copayment for a doctor visit is $30.
For example, after your deductible has been paid, you will pay $30, usually at the time of the visit. If you haven’t met your deductible, you will still pay the full allowable cost of $150. Copayments, also known as “copays”, can also differ for various services within the same plan, such as drugs, lab tests, and visits to specialists.
Generally speaking, those plans with lower monthly premiums will have higher copayments and plans with higher monthly premiums will usually have lower copayments.
Coinsurance
After your deductible has been fully paid, your coinsurance cost is the percentage of the cost of a covered health care service that you must pay. This is typically 20 to 30 percent.
For example, if your health insurance plan allows $150 for an office visit and your coinsurance is 20 percent, you will be required to pay $30 of that bill.
This is a factor that is important in choosing a suitable health plan, especially for those with families or chronic medical needs.
Here’s an example provided by HealthCare.gov website:
Let’s say the following amounts apply to your plan and you need a lot of treatment for a serious condition. Allowable costs are $12,000.
- Deductible: $3,000
- Coinsurance: 20%
- Out-of-pocket maximum: $6,850
You’d pay all of the first $3,000 (your deductible). You’ll pay 20% of the remaining $9,000, or $1,800 (your coinsurance). So your total out-of-pocket costs would be $4,800 — your $3,000 deductible plus your $1,800 coinsurance.
If your total out-of-pocket costs reach $6,850, you’d pay only that amount, including your deductible and coinsurance. The insurance company would pay for all covered services for the rest of your plan year.
Typically, health insurance plans with low monthly premiums have higher coinsurance, while plans with higher monthly premiums tend to have lower coinsurance.
Understanding Out-of-Pocket Maximums and Limits
The most you are required to pay for covered services in a plan year is referred to as your Out-of-Pocket Maximum, or Limit. Once this amount has been spent on deductibles, copayments, and coinsurance, then your health plan will pay 100 percent of the subsequent costs of covered benefits.
However, keep in mind that the out-of-pocket limit does not include your monthly premiums, nor does it include anything you must spend for services that are not covered by your plan.
Example of out-of-pocket maximum with high medical costs
Here’s another example from the HealthCare.gov website:
Let’s say you need surgery with allowable costs of $20,000, and the following figures apply to your health insurance plan.
- Deductible: $1,300
- Coinsurance: 20%
- Out-of-pocket maximum: $4,400
You pay the first $1,300 of covered medical expenses (your deductible). Your 20% coinsurance on the rest of the costs ($18,700) comes to $3,740. So your total costs would be $5,040. That’s $1,300 (your deductible) plus $3,740 (coinsurance).
But your out-of-pocket maximum is $4,400. Your insurance company pays all covered costs above $4,400 — for this surgery and any covered care you get for the rest of the plan year.
Generally, plans with lower monthly premiums have higher out-of-pocket limits and plans with higher premiums typically have lower out-of-pocket maximums, limits.
Finding the Help You Need When Buying Health Insurance in California
It helps to have an expert to navigate you through your options and various cost factors when choosing a health insurance plan in California.
J.C. Lewis Insurance Services! We are a family-owned and operated California health insurance agent licensed to do business in California only through leading health insurance carriers. We specialize in medical, dental, and vision insurance plans and service the following markets: Individual and Family plans, Covered California, Small Business, and Medicare.