If you are researching health care insurance policies or are currently enrolled in a plan, you have undoubtedly come across a set of cost-sharing terms that seem to overlap in meaning. Deductible, coinsurance, and copay are three terms and each involves a very distinct aspect of cost sharing between the insured and the insurance company.

Familiarizing yourself with the terms of your health insurance policy provides you with the knowledge base you need to make the best financial decisions possible before a medical emergency arises.  With an understanding of your cost-sharing expenses, you have the opportunity to plan ahead rather than spending critical healing time worrying about unexpected medical bills.

What is a deductible?

The deductible is the amount you pay for authorized medical expenses per calendar year before your health insurance begins to pay. Once you have satisfied the deductible amount, you will either pay nothing or your percentage of the medical costs, which is usually between 60 and 90%, until you’ve reached your out-of-pocket maximum.

If you have a $1,000 deductible, for example, you are required to pay 100% of the eligible expenses until your annual bill reaches $1,000. Once you’ve satisfied your deductible, you begin sharing the cost of the plan by paying coinsurance.

What is coinsurance?

Coinsurance is a fixed percentage of the cost that the insured is responsible for paying after the deductible has been met. A typical coinsurance split is 80/20, which means that you’re responsible for paying 20% of your medical costs, and the insurance company is responsible for covering the other 80% of the costs. Again, depending on your specific insurer and policy, there is usually a yearly out-of-pocket maximum that limits how much you must pay before the insurance company picks up 100% of eligible costs.

Coinsurance vs. Copay

While your coinsurance is a fixed percentage you are required to pay for any medical procedures throughout the year, your copay is the set rate you pay for each medical visit or medication.

Your insurance policy may require you to pay $25 for each appointment with your primary care physician, $50 for a specialist, and $100 for an emergency room visit. You may also have a $10 copay for medications.

The copay is in addition to any other medical costs you’re responsible for throughout the year, such as deductibles and coinsurance percentages.

What is coinsurance maximum?

A coinsurance maximum, or out-of-pocket maximum, is the most you are required to pay for medical services during one calendar year. Depending on the insurance provider and your policy, the maximum may include the deductible, but it may not. The maximum requirements are also affected by your use of in-network as opposed to out-of-network providers.

In-network provider

An in-network provider agrees to a pre-approved discount for services set by your insurance company. Your doctor might normally charge a standard $130 for an office visit, but because you are a member of an accepted insurance plan, he’s agreed to the insurance company’s rate of $90 per visit. That provides you a discount of $40.

Out-of-network provider

If, on the other hand, you choose to go to an out-of-network provider, you will be responsible for paying your copay plus the additional $40 that your insurance company doesn’t cover. Because you’ve chosen a non-discounted or out-of-network provider, that additional cost does not apply to satisfying your deductible or out-of-pocket maximum.

How maximums work with an in-network provider

Let’s say, for instance, that you have a policy that provides for a $1,000 deductible, your coinsurance is 80/20, and you have a $5,000 cap on your annual out-of-pocket expenses. You fall while playing basketball with your friends early in the year and sprain your ankle. You go to an in-network emergency room for x-rays and medical attention. The visit costs a total of $3,500.

You will first need to pay your $100 emergency room copay, which does not count toward the deductible. At that point, you will then pay the first $1,000 of the bill to meet your deductible.  That leaves a balance of $2,500, of which you are required to pay 20%, or $500. Your out-of-pocket cost for this visit is the $100 copay + $1,000 deductible + $500 coinsurance for a total of $1,600. The insurance company is responsible for paying the remaining 80% of the bill.

Later in the year, you require an outpatient procedure that costs a total of $5,000. You have already satisfied meeting your $1,000 deductible, and you’ve paid $1,500 toward your yearly out-of-pocket maximum. That leaves you with paying your in-network specialist copay of $50 + $700, which is 20% of the remaining $3,500, for a total of $750. The insurance company will take care of the remaining 80%.

If something else happens during this calendar year, and you require another expensive medical visit, you will only be required to meet the remaining $2,800 of your $5,000 out-of-pocket maximum (in addition to any copays) before your insurer pays 100% of their portion of the costs up to the maximum policy limits.

What Is HMO Coinsurance?

Depending on which health maintenance organization (HMO) you choose, their guidelines for deductibles, coinsurance, and copays work much the same way as the preferred provider organizations (PPO) outlined above; however, an HMO maintains much more stringent control over their in-network coverage.

While a PPO allows for a varied list of providers included within their network, and it will generally cover a percentage of the costs of an out-of-network visit, an HMO only provides coverage if you see a doctor within their specific network.

There is one caveat of the HMO coinsurance billing practice, and that is in regard to an emergency room visit. An HMO will cover the cost of the emergency room treatment at its in-network rates; however, the non-network doctors who treated you may bill you at their full rates. You are responsible for paying the full doctor’s rates without the benefit of your HMO coinsurance.

Getting the Answers you Need from Harris Insurance Services, Inc.

There’s a great deal to absorb when you’re searching for health care coverage that works best for your situation. The professionals at Harris Insurance Services are available to answer any questions you have related to terminology, coverage, or the different types of health plans.

Contact us when you’re ready to look at the options that best suit your unique circumstances and preferences.