When selecting a health plan, it’s easy to get distracted by the cost of your monthly premium, but your total health plan costs include much more than that. You must take into account your additional costs including: deductibles, copayments (copays), coinsurance, and out-of-pocket maximums. We know, it sounds intimidating, but don’t worry, we’ll explain everything.
For the sake of this discussion, In-network providers perform all services mentioned for non-routine medical issues. We will reference a sample group health plan’s details below in order to show how these costs related to each other.
What is a monthly premium?
A monthly premium is the dollar amount you pay each month for your health care plan. It is an expense similar which provides continued coverage under the group plan. For the purposes of this article, this monthly premium example refers to the employee’s portion of the premium after any contribution made by the employer.
What is a deductible?
A deductible is the amount you must pay for covered services before your health insurance begins covering its portion of health care costs.
For example, your deductible is $2,500. In January, you have a knee X-ray performed at a freestanding radiology center which the allowable charge is $150. On your group health plan, X-rays are subject to the medical deductible and then coinsurance. You are responsible for covering 100% of the X-ray cost because you have not yet met your deductible.
What is coinsurance?
Coinsurance is the percentage (for example 20%) of an allowed amount you pay to providers for covered services after any applicable deductible has been satisfied.
In the deductible section above, had the deductible already been satisfied, you would have owed only the coinsurance for the knee x-ray charge (i.e. 20% of $150; or $30), and your health plan would have covered the other 80%; or $120.
What are copayments (copays)?
Copays are fixed dollar amounts that you pay for specific covered health care services. Depending upon a health plan’s setup, copays may be applicable either before or after a deductible has been satisfied.
For example, before you had your knee x-ray in January, you had an office visit with your primary care physician (PCP), who sent you for the x-ray.
On our sample group health plan, doctor’s office visits are subject only to copays, and not to the deductible or coinsurance. The copay for a PCP office visit is $35. Therefore, when you saw your doctor, you were responsible for paying only the $35 copay for the visit.
What is an out-of-pocket maximum?
In short, the out-of-pocket maximum is the most you will pay in a plan year for covered health care costs. This includes your out-of-pocket payments for deductibles, coinsurance, copays, and covered prescription drug expenses.
Out-of-pocket maximums do NOT include:
- Monthly health insurance premiums
- Charges over plan allowed amount for covered service
- Charges for non-covered services
Returning to our example with your doctor’s office visit and knee x-ray, let’s suppose those services took place in November, long after you had accumulated multiple other covered expenses for which your deductible, copays, and coinsurance totaled $4,500 (the out-of-pocket maximum on this plan).
In this case, you would have had no copay for your doctor’s visit, and would have paid nothing for your knee x-ray, because your out-of-pocket maximum has been satisfied prior to these services.
The sample health plan that we have used for our discussion includes only In-network benefits. However, it is important to note that plans that do include out-of-network have separate out-of-network deductibles, higher coinsurance, and separate out-of-pocket maximums. In addition, out-of-network providers can balance bill you for amounts over the health’s allowance for a covered service.
Pro tip: Generally, if you have a lower monthly premium, your deductible and out-of-pocket maximum will be higher and vice versa. Every plan is going to have unique limitations. Be sure to have your plan provider or benefits rep walk you through the terms and conditions.
What to take into account as you are selecting a health plan for yourself or your family:
- How much can you afford to pay for a monthly premium?
- Do you need regular prescriptions? What is the plan’s prescription drug coverage?
- Do you expect to have many doctor visits?
- Are you eligible for a “cost-sharing reduction” or tax credit for insurance purchased through the federal or a state marketplace?
- If so, be aware that premiums for individual plans are not eligible to be paid on the same pre-tax basis that employer group plan premiums can.
- How much do you want to pay in a monthly premium?
- How large is the plan’s provider network? Are your preferred doctors and hospitals in-network?
- Have you considered the amount you must pay out-of-pocket before your coverage kicks in?
As a business owner, the pressure is even greater to make sure your employees have plans that work for them and their families. Watch our webinar on how to select the best benefits for your employees here. Working with a PEO like XcelHR allows small businesses to receive high quality benefits at lower costs. Browse our benefits administration services or contact us and we will be in touch!