Health insurance in 2019 isn’t cheap, and even with coverage, you may be responsible for a large portion of your healthcare costs. These expenditures can involve premiums, deductibles, copays and more. Your level of financial responsibility can vary widely from one Affordable Care Act plan to the next. Navigating the various costs of health insurance can be a challenge, but it’s important to understand how these factors affect your overall healthcare spending. Before you sign up for a health plan, take time to become familiar with the basic costs of major medical insurance.
Premiums Get Paid No Matter What
One of the most basic costs involved with major medical coverage is the monthly premium. This is the set amount that you must submit to the insurance company every month in order to maintain your coverage.
Even if you didn’t submit any claims to your insurance company in the previous month or don’t intend to use your health insurance in the upcoming month, you still must pay your premium. If you don’t pay this monthly fee, you’ll lose your coverage. And since failure to pay premiums is a legitimate reason that a company can cancel your coverage, losing your health plan for this reason won’t open up a special enrollment period for you to buy another plan.
You’re Responsible for the Deductible
What is a deductible? It’s a set spending level that you have to contribute toward your healthcare costs before your insurance plan starts paying its share. If you’re hospitalized when you have coverage from an individual health plan with a $6,000 deductible, you’ll have to pay the full amount of the first $6,000 in medical bills.
Some plans pay for claims before you meet the deductible by having you pay a copay at the time of service. You might have a $20 copay to see your doctor, for instance, if it’s just a visit for a sore throat or a sprained ankle. In this case, you wouldn’t have to meet the deductible first. Preventive care is also covered without any cost sharing thanks to the Affordable Care Act. Wellness visits, well checkups for your kids, preventive screenings (like mammograms) and standard vaccines (like flu shots) are all examples of preventive care that won’t come with a copay or coinsurance and won’t count against your deductible.
If you have a family plan, it’s also important to understand the difference between embedded and aggregate deductibles.
- With an embedded deductible, each person has a separate individual deductible. When one person meets that level of spending, the insurance plan will start paying for a portion of that person’s healthcare costs even if the family deductible hasn’t been met.
- With an aggregate deductible, also known as a non-embedded deductible, the full family deductible must be met before the insurance company picks up a portion of any family member’s claims.
Some plans have separate deductibles for various services. For example, in addition to a $3,000 major medical deductible, there may also be a $500 deductible for prescription drugs. Read a plan’s overview carefully to see how it handles deductibles. A low premium might attract you to the plan, but lower premiums mean higher deductibles – sometimes five-figure deductibles.
Copayments Are Set Fees
You might wonder what a copayment is and how it works. The word “copayment” or “copay” refers to a set fee that you pay for particular services. Major medical plans most commonly feature copays for doctor visits and prescription drugs. You might find a plan that requires a $50 copay for a specialist visit or a $10 copay for generic prescription drugs.
As we talked about in the last section, copays may be pre-deductible or post-deductible. Pre-deductible copays aren’t subject to the deductible. From the first effective date of your plan, you can receive these services and be responsible only for the copay portion of the charges. However, your copay won’t count as a contribution toward your deductible. By contrast, post-deductible copays don’t apply until you’ve already met your deductible. After that, you’ll pay a flat fee for certain services.
Coinsurance Is a Percentage
Is there a difference between a copay and coinsurance? Yes, there is, and it can make a big difference in your out-of-pocket costs for the year. Both refer to the portion of your care for which you’re responsible, but each addresses your responsibility differently. Copays are a flat fee for services and can be charged before and/or after meeting your deductible. Coinsurance is a percentage of your medical bills that you must pay. Coinsurance doesn’t go into effect until you’ve met your deductible. After that, you’ll pay the coinsurance amount for any remaining charges.
Think about the hospitalization example above. After you’ve met your $6,000 deductible, the insurance company will expect you to pay your coinsurance amount for any charges above $6,000. If your total hospital bill comes to $10,000 and you have 20 percent coinsurance, you’ll pay $6,000 for your deductible plus an additional $800, which is 20 percent of the remaining $4,000 in charges.
Not every health plan has both coinsurance and copayments, but it is a common structure. And to reiterate a point we made earlier, lower-premium plans usually require customers to shoulder more of the burden in healthcare costs. A bronze plan, for example, might come with a coinsurance rate of 40 percent while a higher-tiered gold plan might only require 20 percent. These costs add up over time, especially if you need a lot of medical care.
Out-of-pocket Maximums Limit Your Responsibility
You’re responsible for the coinsurance and copay amounts until you reach your out-of-pocket maximum for the year. This is the highest possible amount that you’ll have to pay for covered care in one year.
The out-of-pocket maximum doesn’t include any premium costs that you pay. It also doesn’t include the money that you spend on any healthcare services that aren’t covered by your major medical plan. The government sets limits on how high individual and family out-of-pocket maximums can be. In 2018, the cap on out-of-pocket expenses for individual plans is $7,350 (for family plans, that cap is doubled). Your health plan may have a lower out-of-pocket maximum, but no plan can set caps above this government-approved amount, which changes each year.
Cost Assistance May Reduce Your Healthcare Spending
You may be eligible for cost assistance from the federal government that can reduce the amount that you must pay for your health insurance. There are two different types of cost assistance that relate to major medical plans: advance premium tax credits and cost-sharing reductions. To qualify for cost assistance, you have to buy an Obamacare marketplace plan – but you don’t have to buy it from the actual marketplace. You can also use a broker, who can complete the process for you.
Advance premium tax credits, also called subsidies, can reduce what you pay in premiums. How much you qualify for in subsidies depends on your household income. People who earn between 100 and 400 percent of the federal poverty level qualify for tax credits. The government sends your premium tax credit directly to the insurance company, and you pay the remainder of your premium each month. You can use these subsidies to buy a cheaper plan for practically nothing, or you can apply the amount to a more expensive plan with better coverage to make it as economical as a bronze one. Around 80 percent of people who buy marketplace plans qualify for tax credits to reduce monthly premiums.
Cost-sharing reductions are available to people who have incomes between 100 and 250 percent of the federal poverty level. These reductions lower your other healthcare expenses, such as deductibles, copays and coinsurance. To take advantage of these reductions, you must purchase a silver-level plan.
In-Network and Out-of-Network Care Are Handled Differently
Most health insurance plans are designed to work closely with a specific set of providers (referred to as “in-network” care). Providers outside of the designated network will charge more, and your insurer doesn’t have to cover the care unless they’ve made provisions for it in your policy. Out-of-network care is more expensive and requires greater cost sharing on your part, so pay close attention to the network of any health plan you’re considering. Some major medical policies, particularly HMOs, don’t cover out-of-network care at all, which would leave you with the full cost of the bill for non-emergency services.
Balance Billing May Increase Your Costs
There’s one important billing practice that you need to be aware of when you’re buying coverage and picking a health plan, but it won’t be explicit when you’re shopping. It’s a practice known as “balance billing.” Balance billing happens when a provider charges you (the patient) for anything that the insurance company didn’t cover. It goes above and beyond your standard coinsurance rate or copayment, and it affects people who go outside of the plan’s network for care.
Let’s say you see an out-of-network podiatrist for some heel pain. You’ve gone out of network because your friend raved about her podiatrist, and you wanted to see this specialist even though he wasn’t in your plan’s network. The specialist charges $200 for office visits. Your plan will cover out-of-network care but at a higher cost. When the podiatrist’s office files the claim, your insurer decides that it will pay $80 for your appointment. The podiatrist isn’t willing to write off the remaining balance. As a result, you get a bill for $120. If you had stayed inside your network, you would have only paid $40 for a specialist visit (a common example of a specialist copay).
This is a simplified example since much of medical billing depends on a complex system that isn’t standardized from one provider to the next (or one insurer to the next), but you get the idea. This is also a small example. Recent news stories have highlighted patients receiving six-figure bills from providers due to balance billing. It’s become such a problem that lawmakers in Congress are now discussing federal intervention, since states have varying laws on the practice.
The takeaway is that you should – whenever possible – visit in-network providers. If that’s not possible or in your best interest, make sure you understand your plan’s policy on networks and coverage so you won’t get stuck with excess charges. Learning the costs ahead of time, researching your local networks and asking questions can go a long way in ensuring that you only pay your fair share of a medical service.