Health Insurance Deductible

When there is a deductible, there is an annual amount that you pay 100% before the plan pays anything. If there are no copays, then you pay all covered expenses for the year until you have paid the deductible amount yourself. Then the insurance starts to pay. The deductible may be per calendar year, January 1 to December 31. Calendar year deductible is the most common. Unless your coverage starts on January 1, the first deductible period will be less than one year. The deductible in that first period may or may not be pro-rated for the number of months of the initial period.

Alternatively, the deductible year may be based on when you first enrolled in the plan. That may be called a "policy year" deductible. Your deductible year, or benefit year, starts when you were first covered and then goes for a full 12 months. Then the deductible year starts again on the annual anniversary of when your health insurance first started.

If you have medical expenses, then after you have paid the deductible yourself that year, the plan will pay a specified percentage of covered expenses. The percentage may be 100%. That is nice and simple. However, the specified percentage paid by the plan after you have paid the deductible may be 90%, 80%, 70%, 60%, or 50% or somewhere in between. Plans typically never pay less than 50%. You pay the balance of the expenses not covered by the plan up to a certain amount, and only then does the plan pay 100%. When you are paying some and the plan is paying some, the cost-sharing arrangement is called "coinsurance".

Coinsurance and Stop Loss

It is important to find out at what amount of annual covered expenses a plan starts to pay 100%. Is it right after you have paid the deductible in full, or following the deductible are you also paying a percentage of the medical expenses that come after the deductible? That percentage is called coinsurance and could be a bigger amount than your deductible. It's called "coinsurance" because when you are paying some and the insurance company is paying some, it's like "cooperation".

The total amount that you and the company pay together is called the "stop loss", because that is when your losses stop and the insurance pays all of the covered expenses. In other words, the coinsurance is the portion of the stop-loss that you pay in addition to your deductible. If you do not know the stop loss figure as well as the coinsurance percentage, you do not know how much in medical expenses you may have to pay by yourself. You may find that many brochures and plan descriptions do not plainly state the stop loss figure, but you need to know what it is or you do not know what you are buying.

Out-Of-Pocket Maximum ('OOP')

Out-of-pocket (OOP) is used in different ways but oftentimes is the total in medical expenses that you could have to pay in a year before the insurance pays 100%. That is usually the total of the deductible and your coinsurance excluding any copayments you make. Copayments, e.g., for doctor office visits and prescriptions, are usually paid in addition to the declared OOP.

However, in a plan that has only copayments and has no deductible or coinsurance, OOP means the amount you pay before you do not have to pay any more copayments. If that figure is set high, it would be more meaningful to add up all the copayments you might have to pay in a year if you needed a lot of treatment. That would be a better figure to use when comparing OOP to plans that have a deductible and coinsurance.

Copayment

Some plans have copayments only, some plans have copayments and an annual deductible, some have copayments, deductible, and coinsurance. Some plans have a deductible only, which is the simplest of all.

When there are copays (copayments) only, all you pay is a fixed amount for each covered medical service and the plan pays for the rest. Different medical services will have copays of different amounts, e.g., a doctor office visit may be $30 or so, and an outpatient surgery may be $200 or so. There is nothing else for you to pay for that expense, except the specified copay.

Deductible and Copays in one Plan

If there are copays and a deductible in the same plan, then usually each refers to specific, different medical services. Take for example, a $30 physician office visit copay and a $1,000 deductible plus coinsurance in the same plan. Usually, but not always, the $1,000 deductible and coinsurance would not apply to physician office visits. You go to the doctor, pay the $30 copay, and the plan pays the rest. The same is true for prescription copays where there is also a deductible with coinsurance in the same plan. You pay the appropriate copay for generic, or brand name, or non-formulary, and your health insurance pays the rest for that prescription.

Typically, the deductible and coinsurance do not apply to covered prescription costs when there are prescription copays, i.e., you pay only the copay irrespective of whether you have met the deductible. However, some plans have a special, separate, annual prescription deductible, i.e., there are two deductibles, one for prescriptions and a general annual deductible for all other medical expenses. After you have paid the separate prescription deductible, you then only have to pay the copay, and the plan pays the rest of that prescription. However, in some plans you may have to pay coinsurance for prescriptions, instead of copays, after you have paid the deductible.

There are other possible combinations also. Some plans may have copays for most medical services, no deductible, but coinsurance for inpatient hospital up to a certain stop loss figure. These combinations can vary significantly and change as insurers change plan designs so it pays to examine each plan structure carefully.

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