Deductible… coinsurance… out-of-pocket. What do these terms mean? More importantly, how do these terms impact what you’ll pay for health care?
In order to understand how your insurance company covers your claims and determine what you will owe to your healthcare provider, it can be helpful to first understand these terms.
Deductible: The amount you owe for health care services each year before the insurance company begins to pay.
Embedded Deductible: Embedded deductibles have two components: individual deductibles for each family member and a combined family deductible. When a family member meets his or her individual deductible, the insurance company will begin paying according to the plan’s coverage for that member. When the total amount the family has paid towards individual
deductibles reaches the family deductible, the insurance company will then begin paying according to the plan’s coverage for all family members.
For example: Susan and John have a family health plan that has a $1,500 individual deductible and a $3,000 family deductible that covers them and their three children. Susan meets her $1,500 deductible after giving birth to their youngest child in February. Son Tommy breaks his leg and also meets his $1,500 individual deductible in March, which means the family deductible
of $3,000 has now been met. When John needs carpal tunnel surgery later in the year, he does not have to satisfy a deductible before the plan begins to pay.
Coinsurance: Your percentage share of the allowed costs for a covered health care service.
For example: Joe’s surgery costs $8,000. Because he has a $1,500 annual deductible, Joe is responsible for the first $1,500 of the surgery. After that, he has met his deductible and his insurance company will cover 70 percent of the remaining cost, a total of $4,550. Joe will still be responsible for 30 percent, or $1,950, of the remaining cost. Therefore, the total Joe must pay for his surgery is $3,450.
Out-of-Pocket Maximum (OOPM or OPM): An OPM protects you from very high medical expenses. It is the most you should have to pay for your health care during a year, excluding the monthly premium. After you reach the OPM, your plan begins to pay 100 percent of the allowed amount for covered services for the rest of the year.
Copayment: A copayment, or copay, is a fixed amount you pay for a covered health care service, usually when you receive the service. Deductibles often will not apply when a copay is assigned to a service.
For more on the basic elements of health insurance and other employer offered benefits, listen to the recording of our webinar: Let’s Talk Benefits. During this 30 minute webinar, we provided definitions of:
- Types of Health Insurance
- Tax-advantaged Health Accounts
- Understanding Your Network
- Funding Strategies
- Enrollment Periods and Continuation
- Other Types of Benefits
Clients of Acumen Advisors are encouraged to contact their Advisor or Account Manager for more specific information on this topic.