Friday, May 10, 2013

Difference between Coinsurance, Deductible, Out-Of-Pocket Limit, Copayment and Premium

Health Insurance Terminology

Health Insurance as any other type of insurance has its own terminology without which an effective health insurance comparison cannot be done. Below we explain some of the most important health insurance terms so you can make a smart and educated decision when choosing a medical plan.
All of the terms are costs of having a health insurance policy. Most of them are paid only when using healthcare services. The only cost which you have to pay, regardless of using medical services is premium.

Premium

Premium is the amount of money you have to pay for insurance. Premiums are usually paid in monthly or quarterly installments.
Choosing a medical plan that fits your needs and budget is based mostly on balance between deductible, coinsurance, and out-of-pocket limit. All of the three affect your health insurance premium. In general the higher they are the less expensive your health insurance is.

Health Insurance Deductible

Deductible is the amount of money you pay for eligible medical expenses in a calendar year. After deductible is met, you pay nothing or you share the remaining costs with you company up to out-of-pocket maximum.
Deductibles may vary depending on whether medical services are received in or out-of-network. In some cases, services received in medical facilities out of your providers’ network are more expensive and fall under a higher deductible.

Coinsurance

Coinsurance is a health care cost sharing between you and your insurance company. The cost sharing ranges from 80/20 to even 50/50. For example, if your coinsurance is 80/20, that means that your insurer covers 80% of annual medical expenses and you pay the remaining 20%. The cost sharing stops when medical expenses reach your out-of-pocket maximum, which usually is between $1,000 and $5,000. If your medical expenses in a calendar year excess out-of-pocket limit, then your insurer covers all the remaining costs.
There are medical plans with coinsurance 100%, in which case all the medical expenses are covered by insurer after the deductible is paid. Coinsurance rate may also vary in and out of your health care providers’ network. Usually it is higher when going out-of-network.


Out-of-Pocket Limit

Out-of-Pocket Limit (also known as Out-Of-Pocket Maximum) is the maximum amount of money you may pay for medical services in a calendar year. Out-of-pocket limit may and may not include deductible depending on insurers’ definition of the term. The maximum amount of money you may spend for health care services also may vary whether they are receive in or out-of-network.

How deductible, coinsurance and out-of-pocket limit affect health insurance premium?

The more you’re willing to pay out of your pocket the lower health insurance cost is. The higher your deductible, coinsurance rate, or out-of-pocket limit the more affordable health insurance is. It’s as simple as that. Learn more about other factors that affect health premiums and how you can manipulate them to reduce health insurance costs.

Copayment

Co-Payment or Co-Pay is a fee you pay for doctor's visit. Copayments may also vary depending on whether you seek a medical help in or out-of-network as well as on doctor’s specialty. It usually ranges between $10 and $40.

How a typical health insurance plan works

Below we present a simple scheme of health care costs sharing between insured and insurer. The example plan features: $1,000 deductible, 80/20 coinsurance rate (up to $5,000**), $1,000 out-of-pocket limit (deductible excluded), and $20 copayment.  The example assumes seeking health care services within your company providers’ network. It shows the cost sharing from the insured’s point of view.

* excluding some doctor visits, which may be covered by $20 copayment
** insurance company pays 80%, and you pay 20%.
The above example is just a simple illustration created in order to give you a better understanding of health insurance. In reality, your policy can have different deductible, co-insurance, or co-payment. If you're not sure of how your medical plan works please contact your company or agent.

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