Let me preface this 5-part blog series with a friendly disclaimer:
- The information presented is intended for general education purposes about health benefits.
- All terms, concepts, and lessons have been simplified for easy viewing and consumption.
- Each person’s situation is different. Please talk to your Human Resources department / representative(s), along with the appropriate vendor(s) & insurance broker(s) responsible for offering and administering your company’s health benefits, about your circumstances and available options.
What is a copay?
What is coinsurance?
What is a deductible?
Out-of-pocket maximum – what the heck is it???
Be honest with yourself (and don’t ask the Google gods for help!) – do you understand what ALL those terms mean?
If someone you know (spouse, co-worker, etc.) came to you and asked to explain them, could you do it?
If you said “no” – good. You put your ego aside and admitted your ignorance.
Nothing wrong with that.
Also, you’re not alone.
Research studies have shown that many Americans don’t understand these basic terms. “Basic” because they’re foundational to health insurance.
Now riddle me this – what is a premium?
Oh – you MUST know this one!
If not, then we have even bigger problems on our hands.
As (I’m sure) you know, the premium is the amount deducted from your paycheck every pay cycle to pay for the insurance.
If you get health insurance from your job, a large portion of the “total” premium is subsidized by your employer – on average, 83% of the premium for single coverage and 73% of the premium for family coverage – while you cover the rest.
The premium is what many Americans think of (and focus on) during Open Enrollment (before and after too!) because it’s a recurring expense.
But it doesn’t show the “whole cost” picture
Copay, coinsurance, deductible, out-of-pocket maximum – these must be considered as well.
You’re responsible for paying them when you go see a doctor, visit a hospital, or fill a prescription. They are all forms of “cost-sharing.” In other words, you “share” in the “cost” (financing) of your healthcare.
This is different from your premium which covers the insurance. The insurance grants you access to care including preventive care services, a network of providers, medical equipment & devices, and prescription drugs, along with any discounts.
Think of it this way…
You pay a gym membership fee to join 24-Hour Fitness or some other fitness chain. Use of the facility (e.g., weights and machines) and certain amenities (e.g., towels and some classes) are covered by the membership fee. All the other stuff your gym offers – personal training, supplements, apparel, etc. – you pay out-of-pocket.
Similarly, you pay a premium (gym membership fee) to join a health plan (gym) and use its provider network (facilities) and “amenities” like free flu shots and fitness gym reimbursement. Everything else, you pay out-of-pocket.
Having said all that…
First, let’s define the terms
The definitions have been simplified to minimize confusion. So be sure to do your homework. Research and review your coverage options and their cost-sharing features in more detail.
- Definition: A fixed dollar amount you pay before the insurer starts to make payments for covered healthcare services in a year.
- Example: $1,000 deductible – you pay $1,000 in covered healthcare costs during the year, after which, your insurance kicks in and starts covering some (or all) of the costs.
- Definition: The set fee you pay for a covered healthcare service.
- Example: $25 office copay – you pay $25 every time you go to the doctor’s office.
- Definition: The percentage of the cost that you pay for covered healthcare services once you’ve met your deductible.
- Example: 20% coinsurance – you pay 20% while your insurance pays the remaining 80%.
Out-of-pocket maximum (OOP max)
- Definition: The most you would ever have to pay for covered healthcare services in a year.
- Example: $5,000 out-of-pocket maximum – you pay $5,000 in covered healthcare costs during the year, after which, your insurance will start to cover 100% of your medical bills.
Still with me?
If you’ve made it this far…congratulations!
Continue to familiarize yourself with these insurance terms. In part 3 of this series, I’ll show you how cost-sharing works. So, get your pen & paper, calculator (actual or phone app), Excel, Google Sheets, or abacus ready – we’re doing some math!