When it comes to healthcare, there are several terms regularly mentioned by your broker, in plan documents, and in medical bills. This article is meant to dispel some of the confusion that comes with health insurance and addresses what is your responsibility and when.
Whether you have car insurance, health insurance, or any other type, there is traditionally a plan Premium that must be paid before any benefits are available by the plan. This premium binds the contract between you and the insurance company and puts the insurer on the hook for the coverage the plan offers. We do mention "traditionally" above, because for those that purchase health insurance through healthcare.gov, pennie.com, or any of the various state-based exchanges, there may be $0 premium plans that are available. This is possible because of a tax credit available to certain households that pays for the monthly premium on behalf of the family in the event the household income is below a certain level. In effect, there is still a premium... it just doesn't fall on the individual to pay it due to income circumstances.
Once your premium is paid there are three benefits that become available as you use your insurance. Benefit one is Preventative Services, benefit two is a Copay, and benefit three are network discounts.
Preventative Services are free benefits that must be offered by all compliant health insurance plans. Compliant plans do not include faith-based plans or short-term medical options. That said, compliant plans cover services like annual physicals, colonoscopies, and mammograms. You can find a full list of what falls under preventative here.
Next, Copays are explained in the plan when you purchase your insurance. They often provide you with a flat amount you pay at the time of your visit to help provide you with stable prices. For instance, a $25 copay for a primary care visit would mean outside of a preventative visit, if you were meeting with your doctor due to being under the weather you would pay that $25 at the time of your appointment. It's important to note that the Copay for the appointment typically covers any advice you get. This is important because if you meet with a doctor for a six-month review and they recommend lab work that you get, that blood work will be billed separately to your insurance company who will pass on the balance to you.
This is where Network Discounts come in. Most insurance companies recognize that the longer the bills are your responsibility, the less they will pay out of their own pocket. So, they negotiate with doctors and hospitals to get you a discount. This discount doesn't mean they've paid for your bill, but rather they helped to lower your bill. Say, a person needs to get an EKG that costs $2,533 for the test. Your explanation of benefits from the insurer may show a $1,849 adjustment or discount on your bill. This means you are on the hook for the $684 that is left, but you don't have to pay the full $2,533 due to their discount.
Now that we have looked at the ground rules, we want to look at when Deductible, Coinsurance, and Out Of Pocket Maximum come in.
For this, I'm going to use a hypothetical scenario with round numbers. Assume someone has a health insurance plan that offered a $5,000 deductible, 80/20 coinsurance, and $10,000 out-of-pocket maximum(OOPM)...What does this actually mean?
To illustrate this, imagine that person was diagnosed with cancer. They met with an oncologist who recommended they receive three chemo treatments per week for 10 weeks(a total of 30 visits). And, the average Chemo cost is $10,000 per appointment.
For visit one, the billed amount is $10,000. The health insurance Deductible, just like any other insurance, is the first part you are responsible for. Because this plan has a $5,000 deductible, the first $5,000 of the appointment falls on the person. The other $5,000 is actually split up. In this case, we saw 80/20 Coinsurance, which means there is a handshake that happens. The handshake says that the insurance company will pay $.80 of every dollar billed and the individual will pay $.20 of every dollar. So, for the $5,000 that runs through coinsurance, $4,000 is paid by the insurance plan and $1,000 is the responsibility of the individual. That means for appointment one, the individual is responsible for $6,000 of the $10,000 billed.
For visit two, the individual already hit their deductible for the year. Because of this, $8,000(80%) will be paid by the insurance company and another $2,000 will be paid by the individual.
For visit three, the individual will have a repeat of visit two, paying another $2,000. At this point they have paid out of their own pocket $10,000($5,000+$1,000+$2,000+$2,000).
For visits four through thirty($270,000) the insurer is actually responsible for 100% of the bills. This is because at visit three the individual has hit their Out-Of-Pocket Maximum. This is the limit YOU as the consumer will be capped at for the year. The out-of-pocket maximum includes any monies paid toward copays, deductible, and coinsurance amounts, BUT NOT your premium. So, if someone has a plan at $200 per month in premium, they don't get to deduct their premium from the out-of-pocket limit.
That said, this is a big reason why lower deductibles and better coinsurance can help when big bills come along. Additionally, copays for the doctor's office can help with the little stuff and provide stable costs to consumers.
At the end of the day, there is no one-size-fits-all for consumers, so be sure to talk to a certified broker about your specific circumstances.