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.
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:
- The services covered under the plan
- The cost-sharing responsibilities: yours and the plan
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?
Here’s a helpful mnemonic device you can use to work out the math:
Step 1: CODE
You were required to pay:
- $50 copay at the hospital (CO)
- Remaining balance: $50,000 – $50 = $49,950
- 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
Your coinsurance amount isn’t $9,590.
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)
- 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.