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Understanding copays, coinsurance, deductibles and out-of-pocket maximum

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Coinsurance vs Copay

Premiums are what you pay to have health insurance, but out-of-pocket costs when you need health care services, including copays and coinsurance, can also reach into the thousands each year.

Understanding copays, coinsurance, deductibles and out-of-pocket maxes can help you avoid unexpected medical bills. It can also help you budget for health care costs over the coming year.

Let’s look at copays, deductibles, coinsurance and out-of-pocket maxes and how they work together.

What is a copay?

A copay is what you pay at health care visits. Health insurance plans usually charge lower rates for in-network primary care physician visits than specialists.

Both copays for primary care and specialists usually cost well under $100. Some plans even offer zero-dollar premiums, including nearly half of Medicare Advantage plans.

There aren’t copays for annual wellness visits. However, you could still be charged a copay for a wellness visit if your doctor performs a service or requests a test that’s deemed outside of a regular wellness visit.

Meanwhile, in-network emergency room visit copays can cost hundreds of dollars. Those copays may be waived if you’re admitted to the hospital.

Plans often charge lower copays if you receive care at an urgent care center rather than a hospital emergency room. Urgent care centers have less overhead and cost health plans less, so health plans charge lower copays at urgent care centers than emergency rooms.

What is a deductible?

The deductible is what you have to pay for health care services before your health plan starts paying for care.

An annual deductible varies. Kaiser Family Foundation said the average employer-sponsored health plan deductible for an individual in 2020 was:

  • Preferred provider organization (PPO) plans: $1,204
  • Health maintenance organization (HMO) plans: $1,201
  • High-deductible health plans (HDHPs): $2,303
  • Point of service (POS) health plans: $1,714

The IRS defines an HDHP as a plan with a deductible of at least $1,400 for an individual and $2,800 for a family. However, HDHP deductibles can be much higher.

Meanwhile, the Affordable Care Act exchanges classify plans by metal level: Bronze, Silver, Gold and Platinum. The higher the metal type, the more you’ll pay in premiums, but you’ll pay fewer out-of-pocket costs.

A Bronze or Silver plan with higher out-of-pocket costs and lower premiums might be a wise choice if you’re young, healthy, would rather pay lower premiums and don’t expect to need many health care services over the next year. On the other hand, if you use many health care services and don’t mind paying higher premiums with the understanding that you’ll pay less for services, a Gold or Platinum plan may be a better selection.

What is coinsurance?

Once you reach your deductible, the health plan pays a portion of health care services. Coinsurance is the percentage that you and the plan pay for the services until you reach your out-of-pocket maximum.

Let’s say your health plan has 20% coinsurance. That portion of the bill is your responsibility. The insurer pays the other 80% of the coinsurance. So, if you’re hospitalized and the bill is $10,000, the health plan would pick up $8,000 and you’d be on the hook for $2,000.

What is an out-of-pocket maximum?

You pay your coinsurance portion until you reach your plan’s in-network out-of-pocket maximum.

This annual out-of-pocket amount includes:

  • Premiums
  • Anything you pay that the health plan doesn’t cover
  • Out-of-network care and services
  • Out-of-pocket maxes vary by plan. Here are examples:
  • A high-deductible plan can’t exceed more than $6,900 out-of-pocket for an individual and $13,800 for a family.
  • Affordable Care Act plans can’t exceed $8,150 for an individual plan and $16,300 for a family plan.
  • A Medicare Advantage plan can’t exceed $6,700 for out-of-pocket maximums.
  • Original Medicare, which is Part A and B, doesn’t have out-of-pocket maximums. In that case, you may want to get a Medigap plan to help you pay for Medicare costs if you’re concerned about out-of-pocket costs.

How copays, deductibles, coinsurance and out-of-pocket maxes work together

Let’s take a look at an example of how all these health care costs work.

You go to the doctor for an aching back. Your primary care copay is $30, so you pay that before seeing the doctor.

Your doctor decides you need an MRI. You schedule an MRI, which costs $2,000.

Your deductible is $1,000 and your coinsurance responsibility is 20%. In that case, you’d pay the $1,000 for the deductible portion and you’d also be on the hook for the remaining 20% with the health plan picking up the other 80%.

In this case, you’d pay $1,200 for the MRI on top of the $30 copay.

Your back continues to give you problems and you have multiple doctor visits and tests that rack up costs. You wind up reaching your plan’s $3,000 out-of-pocket max after the copays and the 20% coinsurance costs. At that point, your health plan picks up the health care costs for the year. One exemption is that some plans may still charge copays at doctor visits.

Importance of staying in-network

Getting care at an in-network facility or through an in-network provider is vital to keeping down health care costs.

Health plans have contracts with in-network providers. Those contracts dictate how much an insurer pays a provider or facility.

If you go to an out-of-network provider or facility, you’ll have to pay all or more of the costs than you’d spend if you stayed in-network. An HMO doesn’t allow members to see out-of-network providers, so you would have to pay for all of it. A PPO will let you visit an out-of-network provider, but you’ll pay higher for that care than in-network costs.

Find out more about the different types of health plans.

Choosing a health plan based on costs

When deciding on a health plan, you want to review all costs. Don’t just look at copays. You’ll want to also take into account a plan’s deductibles, coinsurance and out-of-pocket maxes.

Also, think about how much health care you’ll likely need over the next year. Some questions to ask yourself:

  • Do you have a health issue that requires regular doctor visits?
  • Do you need surgery over the next year?
  • Do you have children or dependents who may need health care?
  • Do you have a child on the way?

Answering the questions will help you compare health plans. All of those situations increase your out-of-pocket costs and will play a factor in choosing a health plan.

You’ll want to run the numbers -- copays, deductibles and out-of-pocket costs. Once you do that, you can see if it would be better to go with higher premiums or higher out-of-pocket costs.