Health insurance seldom covers 100% of your healthcare costs. The costs that are not covered are called out-of-pocket expenses for the patient. These are of three types:
- Deductible: the amount of money that the patient must spend on her own before insurance benefits start to kick in.
- Copay: the amount of money that the patient pays directly to the healthcare provider (doctor, hospital etc.) at every visit.
- Coinsurance: The copay is usually too small to cover all of the provider's fees. The insurance company covers a large percentage (usually 60-90%, depending upon the plan) of the remaining fee and the patient is responsible for the balance. This balance is called coinsurance.
|What is it?||A percentage of covered benefits that the patient is responsible for paying.||A flat amount that the patient pays a healthcare provider (or pharmacy) at every visit.|
|Typical amounts||10-40% of the provider's bill||$15 - $50|
edit Video explaining the difference
This video explains deductibles and coinsurance and also talks about copay.
edit Copay, Coinsurance and Deductible Example
Assume that a plan has a deductible of $1,000, $30 copay and 20% coinsurance. The patient makes her first visit to a doctor in that year. Like every visit, she pays a copay of $30 at the time of the visit. Suppose the total bill for that visit is $750. The doctor's office bills the insurance company the balance $720. In this case, the insurance company will not pay any benefits and the entire balance ($720) will have to be paid by the patient because the deductible of $1,000 has not been met.
Now let's say the patient makes another visit to the doc and the total fee for the second visit is $900. She pays $30 copay again so the doctor bills $870 to the insurance company. By now the patient has already paid $780 out of her own pocket ($750 for the first visit and $30 copay for the second visit). She needs to pay another $220 to meet her $1,000 deductible. So when the insurer receives the $870 bill from the doctor for the second visit, it will ask the patient to pay the first $220 in full to cover her deductible. That leaves a balance of $650 that is eligible for insurance benefits. Because the plan has 20% coinsurance, the insurance company pays 80% of the $650 in benefits, which is $520. So for the second visit, the total out-of-pocket expenses for the patient are $380 ($30 copay + $220 to meet her deductible + $130 coinsurance).
Finally, suppose the patient makes a third visit to the doctor and this time the fee is $1,030. As usual, the patient pays a $30 copay and the doctor sends a bill to the insurer for the remaining $1,000. With 20% coinsurance, the patient is liable for $200 and the insurance company pays the doctor $800.
edit Other considerations
Navigating the health insurance maze can be challenging because there are other variables involved. For example,
- Some plans have different deductibles for in-network and out-of-network providers.
- In the example above, we counted copay amounts towards the deductible. Some plans don't do that.
- Some plans have an out-of-pocket maximum. When you reach that limit in total out-of-pocket expenses for the year, you do not have to pay any more copay or coinsurance.
- Some plans have a lifetime maximum so the insurance company stops paying for healthcare if they have already paid out that amount over the lifetime of the patient.
- Preventive care such as vaccines for babies is usually covered 100%. Copays are waived and deductibles do not apply in such cases.
- Even with a deductible, it is often advantageous to have insurance because of the fee discount negotiated by an insurer with the provider. i.e. the fee that healthcare providers can charge for a particular service is lower if the patient is insured.