The purpose of insurance cost-sharing is for consumers to have more financial responsibility in their healthcare. Out-of-pocket maximums, co-payments, coinsurance, and deductibles all serve this purpose. However, these cost-sharing policies end up costing thousands of dollars annually. According to the Federal Reserve, 32% of Americans cannot afford an unexpected $400 expense and would need to borrow money, use a credit card, or sell something to meet this expense. Read on to find out what these terms mean and how to maximize your health insurance savings.
A deductible is the dollar amount of healthcare services that you must pay for before insurance kicks in.
A copay is a fixed amount paid for covered healthcare services, paid before and after meeting your deductible.
Coinsurance is the percentage of costs you pay for healthcare services after meeting your deductible.
An out-of-pocket maximum is the most amount of money you’ll pay for covered healthcare services during a plan year.
Health plans exclude specific services that will not count toward your deductible or out-of-pocket maximum.
What is a health insurance deductible?
A deductible is the dollar amount of healthcare services you must pay before the insurance company starts paying the balance. Deductibles are used for all types of insurance, including auto, home, and health. Individual health plans have a lower deductible than family plans. Deductibles range from $0 to over $5,000 annually, with the average deductible being between $1,000 to $3,000.
What are co-pays and coinsurance?
A copay and coinsurance serve as buffers between a deductible and an out-of-pocket maximum. After you meet your deductible, you pay copay and coinsurance. According to healthcare.gov, a copay is “a fixed amount ($20, for example) you pay for a covered healthcare service after you've paid your deductible.” Healthcare.gov defines coinsurance as “the percentage of costs of a covered health care service you pay (20%, for example) after you've paid your deductible.”
The higher your copay and coinsurance, the more you’ll end up paying out of pocket. Co-pays range from $0 to $150, with the average usually around $20 to $50. Coinsurance typically ranges from 0% to 80%, with an average of around 10% to 20%.
What is an out-of-pocket maximum?
An out-of-pocket maximum (also referred to as an out-of-pocket limit) is the most amount of money possible you’ll pay for covered healthcare services that plan year. For example, in 2023, the highest out-of-pocket maximum for a Marketplace health insurance plan is $9,100 for an individual and $18,200 for a family plan. It’s important to note that healthcare you receive that is not considered a covered benefit (like cosmetic surgery). There are two out-of-pocket maximum amounts for each plan year, one for in-network and one for out-of-network care.
Deductible vs out-of-pocket maximum
A deductible is usually more relevant at the beginning of the plan year and an out-of-pocket maximum at the end. This is because, as a policyholder, you’ll first pay toward the deductible for any covered healthcare. Then, once the deductible is met, you’ll continue to pay the copay and coinsurance payments laid out by your plan until you reach your out-of-pocket maximum.
What does not apply to a deductible or out-of-pocket maximum? That includes:
- Monthly premiums;
- Out-of-network care (this would go towards your out-of-network out-of-pocket maximum);
- Care that is considered experimental and/or not medically necessary;
- Care exclusions or limitations laid out in the health plan (cosmetic procedures, certain injections, or certain therapies are common).
|Timeline||What you pay||What insurance pays|
|Beginning of policy year||Deductible, co-pays, and premiums||Nothing. The exception is some plans have specified services that are covered at 100% (like preventive care, birth control, immunizations, etc.).|
|After reaching deductible||Co-pays and coinsurance and premiums||All payments after co-pays and coinsurance for covered services and 100% covered services.|
|After reaching out-of-pocket maximum||Premiums||All payments for covered services.|
Before reaching your deductible
Before reaching your deductible, you will pay for 100% of all services. Any qualifying healthcare services you pay for will also go towards the deductible amount. Payments related to your monthly premiums, and care not covered by your plan do not count toward the deductible total. Out-of-network care does not go towards your deductible and would go towards your out-of-network out-of-pocket maximum.
Some plans cover services like preventive care or immunizations at no cost, without requiring payment towards a deductible. Before reaching your deductible, any qualifying healthcare services you pay for will go towards the deductible amount. Payments related to your monthly premiums, out-of-network care, and care not covered by your plan do not count toward the deductible total. Health Plans cover services like preventive care or some immunizations at no cost, without requiring payment towards a deductible.
After reaching your deductible
After reaching your deductible, you’ll move into cost sharing by paying applicable co-pays and coinsurance for covered services by your plan. All the copay and coinsurance payments for covered services will go towards your out-of-pocket maximum total.
Here is an example of a basic individual plan:
|Example of individual insurance plan|
|$20 copay or 20% coinsurance|
|$4,000 out-of-pocket maximum|
|The plan starts January 1st, 2023 and ends December 31st, 2023|
|The monthly premium is $500 a month|
If this were your plan, you would pay $500 monthly to your health insurance for the entire plan year — January to December — for a total of $6,000 in premiums. So, at the beginning of the year, any payment for covered health services you pay goes towards your $2,000 deductible. You’ll also pay any co-pays at that time. For example, a specialist visit copay might be around $30. You’ll pay the $30 and the specialist bill until your deductible is met.
Once your $2,000 deductible is met, you will continue paying copay and coinsurance. You’ll pay the $30 copay for each specialist visit until your deductible is met. Once the total care you have paid for outside your monthly premiums has reached $4,000, your insurance will pay for the remainder of covered health services for the rest of the plan year.
Choosing the best health insurance
A higher monthly premium usually means you’ll have a lower deductible, coinsurance payment, and out-of-pocket maximum. Conversely, a lower monthly premium typically means you’ll have a higher deductible, coinsurance payment, and out-of-pocket maximum.
Here’s how to consider what would be the right plan for you:
- If you are relatively healthy and go to the doctor once a year. You would probably benefit from a low-premium, high-deductible plan, often abbreviated as an HDHP;
- If you have a complicated health history, see specialists often. You would probably benefit from a high-premium, low-deductible plan;
- If you have frequent visits to the emergency department and are often admitted to the hospital. You would probably benefit from a plan with a low out-of-pocket maximum, since you’ll more than likely end up meeting your maximum.
What happens when you reach your deductible?
Once you reach your deductible, all covered healthcare costs will be paid for according to your co-payment and coinsurance terms until you reach your out-of-pocket maximum.
Which is better: low or high deductibles?
The lower the deductible, the less you’ll pay. However, when choosing a plan, you’ll need to consider the deductible, premium, copay, coinsurance, and out-of-pocket limits.
Will I have to pay after I reach my out-of-pocket maximum?
Sometimes. You will still have to pay for care that is not covered by your plan (out-of-network care, excessive care, or experimental treatments are common limitations).
How do a deductible and out-of-pocket maximum work for a family plan?
For family plans, there may be a small deductible for each family member (embedded deductible) and/or a family deductible (aggregate deductible). Usually, the out-of-pocket maximum applies to the entire family.
When searching for the best health plan for you, remember that no single plan is the best for everyone. Consider how often you need care, what type of care you need, and how much you can afford in monthly premiums. If possible, ask for a copy of your insurance plan language to see what exclusions and limitations are placed on your deductible and out-of-pocket maximum payments.
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