Health Insurance Deductibles and Copayments

As the medical industry expands in scope, capability and complexity, so does health insurance. Knowing the coverage your policy provides is important in case you should ever need to use that protection. Many health insurance policies feature deductibles and co-insurance amounts that are adjustable to fit your needs and means.

Before deciding what options best meet your needs, developing an understanding of the options available is imperative. While there are many more elements to health insurance policies other than deductibles and co-insurance, those two can potentially have a large effect on your health care and your life if and when you should need to use your policy.

Deductibles are the amounts you, the insured, agrees to pay before the insurance company will pay anything. The amount of your deductible is the amount you are at risk for up-front, and so it ought to be an amount that you could pay with relative ease should the need arise at an unpredicted time. Health insurance deductibles work similarly to auto and home insurance deductibles in this way, so if you are unsure what size deductible to select, and your auto and home insurance deductible is, for example, $1,000, you may consider using the same amount for your health insurance deductible.

Some health insurance policies have annual deductibles instead of deductibles based on occurrence (home and auto insurance deductibles are paid per occurrence, not per annum). If your health insurance deductible is an annual deductible, that means that once you've paid that amount, you'll have satisfied your deductible for that year. Keep in mind that the year being referenced is the year the policy is effective, not a calendar year.

Some health insurance policies also feature a family deductible, which means once all those insured (including dependents) have satisfied the yearly deductible, they needn't pay deductible amounts thereafter for the rest of the policy year, or period. Annual deductibles "restart" when the policy is renewed, so if you satisfy your annual deductible on January 20th and your health insurance renews February 1st, on February 5th if you need to use your health insurance you will once more be subject to your deductible, if you chose to renew your policy for another year.

Co-insurance is another type of out of pocket expense that might exist in your health insurance policy and are listed as a percentage, rather than a fixed amount, although with some policies there is a ceiling amount beyond which your co-insurance expense will not reach.

Typical co-insurance percentages are 80/20, 50/50 and 100/0 where the first number represents the percentage the insurance will pay after the deductible is satisfied and the second number represents the percentage the insured must pay, sometimes up to a given maximum.

Co-insurance is on a per-occurrence basis, not an annual basis; it is important to remember that even if you satisfy your annual deductible, you may still be subject to a co-insurance expense.

Let's look at an example. Suppose that your annual deductible is $1,000 and your co-insurance is 80/20 with a cap of $5,000, and you need to cover health care costs of $3,000. Your total out of pocket expense based on your deductible and co-insurance would be $1,600 ($1,000 deductible plus $600 (20% of $3,000). If, later that year, you need a further $2,000 coverage, you would have to pay $400 (20% of $2,000) because you would have satisfied your annual deductible, but co-insurance is per-occurrence.

Likely Page BreakOut-of-pocket expenses may seem nothing short of cruel; after all, if you're injured and need medical attention, asking you to pay hundreds of dollars or more might not seem fair. However, selecting the right coverage, and amounts for out-of-pocket expenses, can in turn alter your premium and so can be a way of lowering your monthly payments.

Your insurance agent can help you decide which amounts and levels to elect for out-of-pocket expenses such as your deductible and co-insurance so that your policy meets your needs without exceeding your means.

Source:
I'm an insurance professional and at the time I composed this article I was a licensed producer in the health insurance field.