Deductibles and Coinsurances

Today’s question: how do deductibles, copays, coinsurance and maximums work? The simple answer is, they define the different ways health insurance companies pay most of the costs to keep you healthy. It’s a little complicated at first but not when you understand how everything works together.

A copay is what you pay when you visit the doctor to share the costs of your healthcare. Copays vary by policy and can change if you see a specialist instead of a regular doctor or seek treatment out of your provider’s network.  Prescription drug coverage also uses copays which can increase for specialty medicines and decrease for generic drugs. Incidentally, in order to encourage healthy behavior, many insurers waive copays for preventive care.

Let’s say Gary goes to the doctor with a case of mono. His doctor charges a $25 copay, and when Gary fills his prescription, he pays a $5 copay to the pharmacy. His out of pocket costs are $30, and his insurance company reimburse the pharmacy and the doctor for the difference between the copay and the cost of treatment.

Coinsurance is the way you and your health insurer share the costs of your care. For example, if Gary is injured and he’s met his deductible for the year, his health plan will pay 80% of the cost of the rest of his bills, leaving him responsible for the remaining 20%.

Maximum out of pocket is the largest amount of money you’ll be responsible for during one calendar year. So Gary won’t pay more than a said amount in a year no matter how high his medical expenses are. However most policies do include a lifetime maximum, which is the largest amount your insurance company will ever pay for your health costs during your entire lifetime. If you meet your lifetime maximum, your coverage ends.

Your deductible is the amount of your medical costs that you have to pay before your health insurance takes over. Here’s an example. Gary has a health plan with a $1,500 deductible. If Gary only has a few little things go wrong during the year that costs less than $1,500 total, he’s going to pay the full amount to treat them. However if Gary has a catastrophic injury or serious illness that requires a lot of medical care to get better, he’ll pay his $1,500 deductible and then his health insurance takes over to pay most, if not all, of his additional costs. It’s a way for Gary to shoulder some of the responsibility for his health while still affording him protection from huge medical expenses.

So to sum it up, you pay copays when you see the doctor. Coinsurance is how you and your insurance company split up your care. Maximum out of pocket is the largest amount you will pay for treatment in one year. Lifetime maximum is the total amount your insurance company will ever pay for your care over the course of your life. And deductibles are the portion you must pay before your insurance pays its share.

So now you know. Until next time, stay smart and stay healthy!

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