Learn the basics part 2: math

Source: “Jim from The Office Stares at the camera” feature photo from knowyourmeme.com

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.

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In my last post, I defined the basic health insurance terms that you need to understand.

Next, let’s review how the cost-sharing rules are applied

Here is where things start to get tricky for a lot of people.

If you used healthcare services, medical devices and/or prescription drugs within the last few years (this year included), then I’m confident that you paid some out-of-pocket expenses.  And it’s possible that, in certain cases, you were unsure what you paid or why you paid it.

Allow me to take a few moments to illustrate cost-sharing at work.

I’m going to use a simple example.

But as I previously stated, be sure to do your homework.  Each health insurance plan has its own cost-sharing rules, so be sure to review:

  1. The services covered under the plan
  2. The cost-sharing responsibilities: yours and the plan

The scenario

Let’s say your current health plan includes the following cost-sharing features:

  • $2,000 annual deductible
  • 80/20 coinsurance (80% insurance, 20% you)
  • $50 hospital copay
  • $5,000 annual out-of-pocket maximum

Aside from a planned surgical procedure covered under your plan, you had no other healthcare expenses this year.

The hospital (which is in your plan’s network) that performed the procedure sends a bill for $50,000 to your insurance carrier.  (I’ll go into more detail about “networks” in parts 4 & 5.)

What were your total out-of-pocket costs?

The math

Here’s a helpful mnemonic device you can use to work out the math:

CODE-COIN-MAX

Step 1: CODE

You were required to pay:

  • $50 copay at the hospital (CO)
  • Remaining balance: $50,000 – $50 = $49,950

Followed by:

  • Your health plan’s $2,000 deductible (DE)
  • Remaining balance: $49,950 – $2,000 = $47,950

Step 2: COIN

Since you met your annual deductible in Step 1, coinsurance kicks in to pay the remaining $47,950 balance. (COIN)

  • Health plan’s share: 80% of $47,950 is $38,360 (0.8 * $47,950)
  • Your share: $47,950 – $38,360 = $9,590 (or 20% of $47,950; 0.2 *$47,950)

Step 3: MAX

But wait!

Your coinsurance amount isn’t $9,590.

Why?

Don’t forget: your health plan includes a $5,000 annual OOP max.

Let’s tally what you’ve already paid thus far:

  • Copay: $50
  • Deductible: $2,000
  • Total out-of-pocket costs: $2,050

Which means you only need to pay a coinsurance amount of $2,950 ($5,000 – $2,050) to satisfy your plan’s OOP max.

Meanwhile, your plan is on the hook for:

  • Its coinsurance amount of $38,360
  • PLUS your remaining coinsurance balance of $6,640 ($9,590 – $2,950)
  • For a grand total of $45,000 ($38,360 + $6,640)

The recap

  • Total bill: $50,000
  • Your portion: $5,000
  • Health plan’s portion: $45,000

Practice, practice, practice…

If you had some trouble following along…don’t worry.

Using CODE-COIN-MAX, go over the above steps again and again until it begins to sink in.  Substitute the numbers with your own.

Here’s an idea: work on the math along with your significant other or child.

But it bears repeating…do your homework!

The above scenario is just one of several cost-sharing methods.  Review each health plan’s cost-sharing rules for specific covered services.

Finally…what type of consumer are you?

It’s an important question.

One you need to answer on this Open Enrollment journey.

Read on…

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