Understanding Out of Pocket Expenses

While health insurance in the United States can help pay most of your medical bills, there will still be a portion that must be paid out of pocket. Use this article as a guide to help you better understand these costs and to give you a better idea of what to look for while shopping for health insurance.

Premium

A premium is the initial cost of buying insurance coverage and can be paid as a lump sum or as installments throughout the duration of the policy. If you fail to pay your premium when it is due, your insurance policy will be automatically cancelled. Depending on your insurance carrier, your policy may be restored if you pay the outstanding amount within a certain time period.

Deductible

The deductible is the amount of money you are responsible for paying for medical expenses before the insurance company begins to pay on your behalf. For example: If you choose a plan with a $1,000 deductible, you are responsible for the first $1,000 of your medical bills. After your deductible has been paid your insurance company will begin to pay for all eligible expenses.
Most insurance plans have different deductibles for different types of coverage, for example you might have to meet a $1,000 deductible before your insurance will pay for a hospital visit, but only a $250 deductible before your insurance will pay towards prescription medication. Keep in mind that the higher your deductible, the lower your premiums will be each month, but you will also be responsible to pay more when you seek treatment.

Coinsurance

Coinsurance is a cost sharing agreement between the insurance company and the insured. This means that the insured must pay a certain percentage of his or her medical costs (after the deductible has been paid). These percentages differ from plan to plan so be sure to check the policy wording before choosing a plan.

Copayment

Not to be confused with coinsurance, copayment is the set amount you pay each time a medical service is accessed. Copay fees vary between policies, but are typically $25 or less. Your insurance policy for example, may require you to pay $25 for a doctor’s appointment and $10 per prescription up to a specified coverage limit.

Out-of-pocket Maximum

This is the highest dollar amount that you must pay for covered expenses under your insurance policy, including deductibles and coinsurance. After this dollar amount has been reached, your eligible medical bills will be covered 100%. Generally these maximums are between $1,000 for an individual and up to $11,000 for a family. Most likely you will never reach this out-of-pocket maximum, but it can serve as a nice safety net.

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