Health insurance deductibles, copays and coinsurance. What are the meanings and how do they affect your medical benefits? We help you understand how they impacts your out-of-pocket expenses and explain whether it is best for you to have a high or low deductible on your healthcare coverage. Each policy is different, and of course every individual or family situation is unique. Also, your eligibility for a federal subsidy must also be considered.
Copays are a unique component of the policy since the amounts are much lower, and they usually apply to non-catastrophic claims. Typically, they are available between $5 and $50 and apply directly to office visits (both primary care and specialists) and prescriptions. Sometimes they will apply to an ER visit or an expensive procedure such as an MRI or CAT scan (mostly with HMO plans). A copay is much more desirable than a deductible, since the amounts are substantially lower.
What Is A Deductible And How Does It Work?
Quite simply, it is the dollar amount that you are responsible to pay if you have a major medical claim. Typically, these types of claims include inpatient or outpatient hospital bills, ER charges and certain other expenses. The insurer will generally pay a large portion (or sometimes all) of the remaining charges. Usually, unlike your auto or home policy, you only have to meet one per year (per person). On a family policy, the maximum is typically two. However, on short-term plans, sometimes you may have to meet a separate deductible for each illness or accident.
There is not a lifetime cap on benefits paid unless it is a short-term plan. And on short-term plans, the cap is often about $1 million or $2 million, which is usually sufficient. However, many short-term plans only offer $250,000 of benefits, but you can apply to renew the contract and a new lifetime amount will be provided. “Mini-med” or “discount” policies do not have unlimited benefits. Also, these two options often have expensive upfront application fees, which are nearly impossible to get back after you have applied for coverage.
Coinsurance is your out-of-pocket expense after you have met the deductible. For example, a typical Marketplace policy may have a $5,000 deductible with 20% or 30% coinsurance and a maximum out-of-pocket expense (MOP) limit of $8,550. This means that after $5,000 of approved expenses have been submitted, you are only responsible for 20% or 30% of your healthcare bills. When you reach the $8,550 limit, you have 100% coverage.
Current Marketplace policies (both on and off the Exchange) generally offer coinsurance options of 0%, 10%, 20%, 30%, 40%, and 50%. Often, lower deductible contracts will also include a higher coinsurance, to help keep the premium affordable. Many HSA contracts also offer several options, although 0% is the most popular. Health Savings Accounts perform best when expenses are low in most years.
If you have a comprehensive health insurance policy, which is sometimes fairly expensive, many of your routine medical bills will not be subject to high out of pocket costs. For example, as previously mentioned, most “copay” policies have a specified amount that you pay for a covered office visit. Although on catastrophic-tier plans, there may be a limit to the number of covered visits allowed per year, most Marketplace policies allow for unlimited covered visits. This also includes visits to specialists, which are more expensive.
When shopping during Open Enrollment, Bronze-tier plans often have deductibles as high as $8,550 ($17,100 per family). When applying for coverage, if a surgery or expensive procedure is expected for the following calendar year, a Silver-tier option may be more suitable. Even without a federal subsidy, paying an extra $100 per month could potentially save more than $3,000 in expenses, depending on the maximum-out-of-pocket expenses limit for that specific policy.
Qualified preventive office visits and expenses do not have to meet a copay or any type of waiting period. Often diagnostic tests and Urgent-Care expenses have small copays also, especially on HMOs. For children, their “well-check” examinations have no out-of-pocket expense, since it is covered at 100%. Most immunizations and state-required shots are also included at no cost to you. However, the cost of complications from a preventative visit may not be covered at 100%.
Prescriptions work very similarly. A catastrophic medical plan will either have high non-generic drug copays, or force you to meet a deductible before any benefits are paid. But a comprehensive policy will feature copays that allow you to pay just a small portion of the actual cost of the prescription for many preferred-brand drugs.
Generic prescriptions are generally so inexpensive that you often pay those expenses yourself. The typical cost may be in the $3-$7 range. If you are prescribed a brand-name drug, there may be a less expensive generic substitute available.
For example, if your cost at Krogers or Costco is only $6, you would not submit a claim if you had to pay $15 for your copay. Of course, a non-generic prescription would be more costly and you probably would use your policy. The copay for brand-name drugs is usually going to cost more, so, as previously mentioned, ask your physician to prescribe the cheapest available drugs.
How Has Recent Legislation Impacted Deductibles And Copays?
The Affordable Care Act (Obamacare) has eliminated some of the choices consumers have when selecting coverage on the Exchanges. Each state has an Exchange or “Marketplace” where policies are purchased. Although some states, such as Colorado, New York, and Minnesota, operate their own Exchanges, most states allow the federal government to operate all aspects, including applying and terminating policies, comparing benefits, and qualifying for Special Enrollment Period exceptions.
Our website and affiliated brokers give you direct pricing and help calculate your new federal subsidy and if you qualify. It is possible that the federal subsidy will exceed the cost of your healthcare coverage. In these situations, your policy is free. However, if your household income increases, you may have to pay a premium.
The four available Marketplace plans are Platinum, Gold, Silver and Bronze. The Platinum policies are the most expensive, since they have lower deductibles and maximum out-of-pocket expenses. Conversely, the Bronze option costs the least, but you will take more risk by paying more in the event of a big claim. “Outside Exchange” plans offer larger networks (sometimes), but benefits are similar. We can review specifics with you so you can choose the most cost-effective contract.
If you qualify for a large subsidy, a Platinum or Gold plan (with low deductibles) will suddenly become quite affordable. It’s possible a monthly premium could reduce from $1,000 to $300. Or $600 to $100. The Silver plans, with their unique “cost-sharing” provision, may be the best choice since it will cost less than the two previously mentioned Metal options, and perhaps offer lower expenses if you have a large illness or injury.
What If I Missed Open Enrollment?
You’ll be in good company because millions of eligible applicants, for various reasons, miss the Open Enrollment deadline. The most important thing is to secure affordable coverage as quickly as possible, and bridge the gap until the next eligible period (typically in November).
Perhaps the two best options are applying for a temporary plan or utilizing one of the many “qualifying life events,” that allow you to buy coverage at any time during the year. And the Affordable Care Act tax credits would be available to lower the premium on these events. Common SEP exceptions include losing group benefits at work, divorce, birth or adoption of a child, moving to a different state, marriage, or loss of “minimum essential health coverage.”
A short-term temporary policy can provide a low-cost alternative that can be quickly approved and kept for up to one year. Although rates are low, preventative expenses, office visits, and drug costs generally must meet a deductible. And of course, this type of policy is not ACA-approved.
What Is The Best Deductible To Have?
The best option is the one that allows you to pay the lowest possible amount on the combination of your medical insurance premium and out of pocket expenses. We’ll create a few scenarios to help you understand the concept.
If you are very healthy, have few medical expenses and no serious physical conditions, a higher option is your best choice. For example, by having a $5,000 deductible on the large claims instead of $1,000, you may save as much as $2,000-$4,000 per year, depending on the number of persons that are insured.
Thus, if you were to meet your deducible once every five years (which is much more often than expected with healthy insureds), you would pay $8,000 more in deductibles, but perhaps save as much as $10,000 to $20,000 in premiums. NOTE: Your eligibility for a federal subsidy must be considered in all scenarios, since it can potentially save you thousands of dollars in premiums and out-of-pocket costs.
However, lower deductibles make more economical sense if the risk is higher that you medical expenses will reach or exceed your stated amount. For example, even if you save $3,000 per year with a higher deductible, if your out-of-pocket expenses are more than the savings, a lower deductible is more cost-effective. Essentially, each situation is different, and also your health can change quickly, which would impact any potential savings.
In past years, you were forced to stay with your current company if you developed a chronic condition. However, The Affordable Care Act (previously mentioned) allows you to go through an Open Enrollment each year. This is very helpful if your health changes. Thus, you will never get “stuck” with a higher out-of-pocket expense plan any longer than 12 months.
What Are The Highest And Lowest Copays And Deductibles Available?
Most large insurers will not offer non-HMO options lower than $500. Occasionally, a $250 option may be available. But the rate will be very high, and even without any issues, the rate may not be competitive. You may be paying $350 per year to save only $250. Blue Cross plans in several states have low amounts. And of course, HMOs often have $0 options including copays. NOTE: Always consider MOP (Maximum Out-Of-Pocket Expenses) along with the deductible.
Higher options are much more popular. The $6,850 option is a favorite of individuals and families that purchase their own private medical insurance, since it is the highest available choice. Generally, Bronze-tier policies feature choices between $5,000 and $6,850. Silver-tier plans will often offer choices as low as $1,000 or $1,500. And, as previously mentioned, no-deductible HMO plans can be purchased.
Can I Ever Change The Deductible On My Health Insurance Plan?
Yes and No. OK…I’ll explain. Usually, on the anniversary date of your policy, you can change to a different plan, and also choose a different company. When the new calendar year begins, any prior credits towards the deductible or MOP end, and you begin with a $0 balance.
During an Open Enrollment, you can easily change plans. Since they occur only once per year (unless you have a qualified exception), it’s important to understand what ramifications a high deductible might mean. For example, if a major illness or injury occurs, for that calendar year, it’s likely you’ll incur large costs. Of course, you can lower your deductible and coinsurance beginning the following year, if the condition is chronic and ongoing expensive treatment will be needed.
Typically, if you have no medical problems, you can change deductibles on non-compliant short-term policies by taking out a new plan. And, you can also change companies. Of course, if you change carriers, you need to secure an underwritten offer first, for your protection. Otherwise you risk cancelling one policy and not being able to obtain that same rate again if you were treated for a serious illness.
How Many Times Per Year Do I Have To Pay It?
Most medical insurance policies limit one per person per year. If there is more than one person insured under the plan, it is possible that the maximum may be increased to two (and rarely three) deductibles. But generally, the deductible is satisfied “per year” instead of “per occurrence.” A common exception is a short-term contract through selected carriers. It’s conceivable you could pay multiple times within a policy period. And yes…that could get expensive. But the price will be less.