Deductibles, Coinsurance, and Co-Pays: A Beginner's Guide

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Health insurance can be complicated, but it doesn't have to be. Insurers and healthcare professionals often use intimidating terms when discussing paying for your doctor's visit, but with a good understanding of how insurance payments work, you can save yourself both money and stress.

Deductibles

Many insurance plans include a deductible. A deductible is the amount you pay out of pocket on healthcare costs before your insurance company starts to contribute to your healthcare costs for the year.

Generally, a plan with a lower deductible will have a higher monthly premium than a plan with a higher deductible. For 2016, the minimum deductible which qualifies your plan as a high deductible health plan is $1,300 for individual coverage or $2,600 for family coverage. This amount can adjust each year based on cost of living estimates made by the Internal Revenue Service. (There was no change for 2016).

If you are on a Preferred Provider Organization (PPO) plan, you may see two deductibles. In this case, you will have one deductible for in-network providers and a separate deductible applied when visiting out-of-network providers. If you have a PPO and two deductibles, be sure to pay attention to whether or not your provider is in-network, as the difference can cost you thousands of dollars.

Remember that a health insurance deductible works differently than deductibles in other types of insurance plans. For example, with auto insurance, services are not provided until you pay your deductible. With health insurance, however, your deductible typically covers all claims in a calendar year—be sure to always check your policy wording for exact details.

Coinsurance

Once you reach your annual deductible, your insurance company will begin to pay a set portion of all insured healthcare costs, called a coinsurance. Here is an example:

Someone who has not yet met his deductible goes to the doctor early in the year for a checkup. The doctor's office charges $120 for the visit, but he gets a plan discount, so the visit ends up costing $100. He pays the $100 to the doctor.

Later that year, the same person goes back to the doctor for a similar checkup with a $120 charge. The patient has had other healthcare costs since the last visit, and has reached the annual deductible for his health plan. Once the deductible is reached, the plan offers 80% coinsurance. After the plan discount, the office visit costs the same $100. But this time, the insurance company pays $80 and the patient only pays $20.

Coinsurance levels vary by plan, as do deductibles, which is why it is important that you understand how your insurance plan works.

Co-Pays

Some insurance plans do not have any deductibles or coinsurance at all, and instead charge a fee schedule that includes a co-pay for any office visit. This is common with Health Maintenance Organization (HMO) plans, and less common with PPO plans. However, any insurance plan can charge a co-pay, regardless of whether it is an HMO or PPO.

A co-pay is a fixed charge that a patient pays for every doctor's visit. Typically, there is a lower charge for seeing a general practitioner than a specialist. The co-pay amount can vary between plans. Some insurance plans require that patients only pay a co-pay for an office visit, as the remainder of the cost for the visit is included in monthly premiums.

Knowledge Can Save You Money

Knowing how your insurance and healthcare costs are structured is an important part of your personal finances. The next time you choose a plan, look at your typical healthcare needs and costs so you can make the best decision for your health, and your wallet.

Want a visual breakdown? Check out this video explaining how deductibles, coinsurance, and co-pays work.

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