Deductibles, copayments and co-insurance are all examples of cost sharing plans. Cost sharing of medical expenses is the situation where an individual and their medical insurance company both pay a specific portion of the medical fees that the insured person accrues. Understanding how these cost-sharing plans work allows individuals to know how much as well as when you have to pay for medical care.
The term coinsurance is not only used in medical insurance, it also exists in other types of plans such as property insurance. Co-insurance is sometimes referred to as percentage participation. The basic concept behind this insurance plan is that the insurer (company) and the insured (individual) share the risks in terms of costs, of all medical visits to a hospital. In the context of health insurance where this plan is most common, this usually means that you will pay a certain percentage of the medical fees then the insurance company steps in and pays the rest. The amount payable in terms of percentage depends on the type of plan you choose as well as the insurance company that you are insured with. Additionally, in other cases, you might not be required to pay any amount as coinsurance.
Before you can fully understand how co insurance works and maybe save money using the different plans, you will need to know the other cost sharing plans, that is, co-payments and deductibles. Co-payments are normally confused with co-insurance but they do not mean the same thing. A co-payment is usually a fixed amount that you are expected to pay each time you visit a doctor regardless of the reasons for those visits. It is not calculated as a percentage of the medical fees like co-insurance. Depending on your medical insurance plan, you may be required to make both a co-payment and pay the co-insurance amount for visiting a doctor. Additionally, most co-payment plans do not qualify for an out-of-pocket expenses cap that allows an individual to stop paying co-insurance when they reach a certain limit. These caps are usually calculated as a total of all the co-insurance and deductible payments an individual has made. After reaching the maximum out-of-pocket expense limit, the health insurance covers the total amount of the medical expenses until you meet the lifetime cap. The lifetime cap is basically the amount of money the insurance company is willing to spend for your healthcare needs in your lifetime.
On the other hand, a deductible is simply the amount of money that an individual must pay before the insurance company steps in and takes care of the rest. Note that the benefits provided by the insurance company only kick in after you have cleared this amount. The Affordable Care Act also known as ACA or Obamacare requires that all major medical health insurance plans to have a maximum out-of-pocket amount of less than $6, 750 for all beneficiaries for 2015. Additionally, all major medical insurance plans must provide a maximum of $12, 700 out-of-pocket amount for every family.
Co-insurance, co-pays and deductibles all work hand in hand to protect an individual’s finances. That is, they lower the out-of-pocket medical expenses one is required to pay for health services. The following is a step by step of all these terms and how you can leverage them to reduce your medical expenses.
When an individual and the insurance company that they are registered with both have to pay a certain percentage of the medical fees, it is referred to as cost sharing. Co-insurance, deductibles and co-payments are all examples of cost sharing. Co-insurance and copayments are insurance terms that most people often get confused about. However, they are not mean the same thing. For instance, when you reach your deductible, you are required to pay a portion of the remaining expenses, this is known as the co-insurance amount.
For example, imagine you have an insurance policy with 20% co-insurance. In essence, this means that the insurance company will pay 80% of medical expenses that are covered by the policy and you will take care of the rest. However, the insurance company only covers the 80% after the you have met their deductible amount and paid the remaining 20%. However, this -20% will not be paid forever. It is only paid until the out-of pocket maximum is reached. Afterwards, the insurance company will cover the total amount of medical expenses that are covered by the policy, until the end of the year. This period can vary from one insurance company to the next.
Most people are more familiar with copayments. Copayments are simply the flat (predetermined) fee an individual pays for medical services such as over the counter prescriptions as well as check-up visits to a doctor. This flat fee is paid in addition to what the insurance company already covers. For example, some health medical insurance companies require a 10% copayment for each visit the insured person makes to a doctor. This is regardless of the level or type of medical services provided during the medical visit. However, most copayments are usually not calculated in terms of percentages. The terms and conditions for copayments vary depending on the insurance company. Therefore, it is wise to do some research before settling for a specific medical insurance company.
On the other hand, deductibles refer to the amount that an insured individual has to cover for health care expenses before the medical insurance company covers the rest of the costs (this could be a self-insured company). Most insurance policies and plans base their deductible amounts on an annual basis. By going for an insurance policy with great deductible, copayment and co-insurance plans, individuals can reduce the cost of their medical expenses significantly. For instance, some medical insurance companies have plans that allow individuals the first few doctor visits with a co-payment. Afterwards, your co-insurance and annual deductible will apply for all visits in the future. As a result, insured individuals will not be charged a co-insurance or a co-pay especially for preventive medical services such as regular medical check-ups.