Yes, in addition to paying your monthly or annual premium for your health insurance policy, many coverages automatically include cost sharing expense that you are also responsible for paying. That’ s right, these costs are in addition to your health plan premium. So what are these costs and how do they work? Well, cost-sharing payment terms sound very similar and it can be confusing as to what you are actually paying for in your health policy, so let's break it down.
Deductible is just another fancy word for out-of-pocket costs. Every policy has a premium amount you must pay for your health insurance benefits, but many of those health benefits will not be paid for by your insurance until you pay the full amount of your deductible. Example: Your policy has a $2,500 deductible. You must pay $2,500 for your health care services with your own funds before your health insurance kicks in and starts covering your healthcare costs.
First, your health expenses are generally reduced because you are paying prices negotiated by your carrier, not the doctors pricing which is usually more expensive. And second, the real reason you have insurance is to protect you against the unforeseeable, rainy-day, out-of-the-blue accidents or disasters that can lead to catastrophic medical expenses. Having insurance if and when one of these disastrous events occurs can drastically reduce your hospital bills.
Once you have met your deductible and your insurance begins to cover your costs, you still have to pay cost-sharing expenses, such as co-payments and coinsurance, if required by your plan. Example: You have paid your $2,500 deductible and your plan requires a co-payment of $40 for a doctor’s visit and 20/80 coinsurance for minor surgery. When you go to your doctor’s visit you would pay $40; when you have your minor surgery you would pay 20% of the bill. That’s it, the insurance will pick up the rest.
It saves you money. Most of the time, the insurance company is picking up the larger portion of the medical bill which means you are saving. Also, it is common for cost-sharing expenses to be kept at a minimum when you are going to doctors in-network physicians and often becomes more expensive when you use doctors out-of-network physicians, meaning you pay a larger portion of the bill when you go see doctors out of your health carrier’s network.
Your out-of-pocket limit sets an amount you must pay before your insurance pays for ALL of your health care expenses, no more cost-sharing. This out-of-pocket limit counts your deductible and all of your coinsurance and co-payments that you have paid. For year 2016, the federal government has set the out-of-pocket limit maximum to $6,850 for an individual plan and $13,700 for a family plan - meaning that a carrier cannot set your out-of-pocket limit any higher than these rates.
Example: Let’s say my plan’s out-of-pocket limit is $5,000 and half way through the year I’ve already paid my full deductible of $2,500 plus, through all my coinsurance and co-payments, I’ve also paid an additional $2,500 of my own money. Thus, I have reached my out-of-pocket limit and now my insurance company pays for the rest of my health claims in full without any cost-sharing up to the maximum dollar policy limit.
The maximum dollar limit is the set amount your health insurance will pay for your health claims within a certain period of time, usually yearly.
Example: My insurance has a maximum dollar limit of $100,000 per year. Let’s say 8 months into my policy, if my health insurance company has already paid for $100,000 for my health claims, they no longer have to cover my health care. So it is good to be aware of the policy’s limit and try to plan your insurance accordingly - make sure you are not underinsured if you know you will be spending a lot of money on healthcare within a given year.