Co-insurance, co-pays and deductibles explained
Posted
Jul 03 2009, 09:19 AM
by
Karen Datko
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This post comes from partner blog The Dough Roller.
Individual health insurance plans can be costly, complex and downright confusing. Navigating the world of co-insurance, co-pays and deductibles becomes a difficult task when it comes to choosing insurance plans that are not prepackaged and backed by an employer.
Many self-employed individuals and those who work for employers that do not provide health insurance spend hours trying to decipher the language of the industry and find the best coverage for the lowest premiums.
All health insurance plans are not created equal. Health insurance companies use a variety of different approaches when developing products and services for individual buyers. Low premiums might not necessarily mean that individuals are getting the type of coverage they need. The first step in exploring the many different types of individual health insurance plans is to learn all about the basic terminology and common features.
What is co-insurance?
Co-insurance is a method that health insurance providers use to split the cost of your health care needs. The insurance company pays for part of the cost and the individual pays the remaining balance due out-of-pocket. Insurance companies determine in advance a percentage of the cost they will cover, and the individual is also responsible for a predetermined percentage. This is often referred to as the "percentage participation" rate.
Some standard percentage participation rates for co-insurance are 70/30, 80/20 and 90/10. On a 70/30 plan, the insurance company pays for 70% of costs incurred, while the individual is responsible for the remaining 30%. We learned about the cost of co-insurance the hard way when my wife spent nine days in a hospital early last year.
As an added measure of protection, most major health insurance companies will limit the amount of money that an individual is responsible for paying out-of-pocket on a yearly basis. This is called a "co-insurance cap," and it protects those on the plan in the event of a catastrophic medical problem, such as a debilitating car accident or terminal illness. A typical co-insurance cap is limited to $2,000 or $3,000. Once the co-insurance cap is reached, the insurance company will assume responsibility for 100% of any charges incurred thereafter.
Typically, a health insurance plan with a high percentage participation rate for the consumer -- such as 70/30 -- has a much lower monthly premium, while plans with lower percentages will feature higher monthly premiums.
What is a co-pay?
A co-pay is commonly confused with co-insurance. The two are similar, but there is one key difference. With a co-pay, the dollar amount that an individual will pay for health care services is fixed. There are absolutely no percentage participation rates with a co-pay. Different services are assigned a dollar amount that will be paid by the individual receiving services. For example, a standard co-pay for a visit to a family doctor might be $25. This means that each time the insured individual walks into the family doctor's office, that person can expect to remit a payment of $25 at the time of service.
When it comes to health care, a "service" might be a doctor's office visit, a trip to the emergency room, or prescription medications. Co-payments may vary for different services, but the dollar amount will always be fixed. The services that insurance companies cover also vary; for instance, certain providers might not offer coverage for dental procedures or eye exams as part of their health insurance plan.
Typically, a health insurance plan with higher co-pay rates for various health care services has a much lower monthly premium, while plans with lower co-pay rates will feature higher monthly premiums.
What is a deductible?
Some insurance plans include a deductible. The deductible is a fixed dollar amount that an individual must pay out of pocket before the insurance company will begin to cover the costs of any health care services. For example, if a plan has a deductible of $500, then the insured party must spend $500 on services out-of-pocket. After that $500 mark has been reached, the insurance company will begin to assume responsibility for health care costs, usually either via co-insurance or a co-pay, depending on the type of plan.
Typically, a health insurance plan with a high deductible has a much lower monthly premium, while plans with lower deductibles have higher monthly premiums.
Unfortunately, there is no simple solution or one-size-fits-all answer for choosing an individual health insurance plan. As evidenced by the terms, conditions and numbers above, a plan with a low premium will not necessarily be the very best choice. It is important to weigh the costs associated with co-insurance percentage participation rates, co-payment amounts and the services that are covered, as well as deductible rates.
Related reading at The Dough Roller:
99 painless ways to save serious money
How to find affordable health insurance online
5 ways to reduce your car insurance bill
