Understanding Copays & Deductibles
UNDERSTANDING COPAYS & DEDUCTIBLES
Understanding health care can be confusing. That’s why it’s helpful to know the meaning of commonly used terms such as copays, deductibles, and coinsurance. Knowing these important terms may help you understand when and how much you need to pay for your health care. Let’s take a look at these terms to better understand what they mean, how they work together, and how they are different.
What’s a deductible?
A deductible refers to the amount of money you pay for healthcare services before your health insurance plan kicks in. For example, if you’re on a medical plan with a $1,500 annual deductible, it means that you are personally responsible for paying the first $1,500 you accrue in healthcare expenses that year. After that initial $1,500 has been paid, your health insurer will begin to pay for all or some of your care.
What’s a copay?
Once you’ve reached your deductible, you might still need to pay some money to access certain healthcare services. This fixed out-of-pocket amount is known as a copay, and it means that you are sharing the cost of care with your insurance provider. For example, you might pay a $25 cost per appointment every time you visit your doctor, or $10 to refill a prescription.
What is coinsurance?
Coinsurance is a portion of the medical cost you pay after your deductible has been met, and your health plan kicks in. Coinsurance is a way of saying that you and your insurance carrier each pay a share of eligible costs to add up to 100%.
Here’s an example of how coinsurance works once you’ve met your deductible. If your coinsurance is 20%, you pay 20% of the cost of your medical bills. Your health insurance plan will pay the other 80%. Let’s say you meet your annual deductible in July. In August, you need an surgery that costs $2,000. Your coinsurance share is 20%. That means you need to pay $400 ($2,000 x 20%). Your insurance company pays the other $1,600. The higher your coinsurance percentage, the higher your share of the eligible cost is.
Out-of-pocket maximums
Both deductibles and copays count toward your annual out-of-pocket maximum, which means that once you’ve reached a certain figure in both deductibles and copays, your insurance will cover 100% of medical costs without you needing to share those expenses. In other words, a health insurance plan with a low out-of-pocket maximum will mean less money spent in deductibles and copays – but you could end up paying more in monthly premiums.
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