Health Insurance Premiums, Deductibles and Copays – Here’s How They Work

Benita Lee
Benita Lee, MPH, is on the Research Team at GoodRx.
Posted on

Shopping for health insurance and feeling a bit confused? You’re not alone. A recent survey by the UnitedHealthcare Group found that only 9% of Americans have an understanding of four of the most basic health insurance terms: health plan premium, health plan deductible, out-of-pocket maximum and co-insurance. For the other 91% of you, we’re here to help.

 

 

Health plan premium

A health plan premium is an amount you have to pay each month for a health insurance plan.

Premiums are similar to the monthly payment you might pay for Netflix, except with insurance, you’re locked in for the year. On top of your premium, your plan usually requires other payments for healthcare services. We’ll go into those below.

 


 

Health plan deductible

A health plan deductible is how much you have to pay for qualified medical expenses before your insurance kicks in and starts to pay.

Having a set deductible doesn’t necessarily mean you’ll pay for all of your healthcare services before you reach your deductible. Under the Affordable Care Act, insurance plans are required to pay for certain services like preventative care even before you get there. And remember: After you reach your deductible, you may still need to share medical costs with your insurance. That’s where co-insurance comes in.

 


 

Co-insurance

Co-insurance is how much you still have to pay for your healthcare costs after you’ve reached your deductible and your insurance begins to help.

Co-insurance is often presented as a percentage. After you meet your deductible, if your co-insurance is 20%, you’re responsible for 20% of the cost (while your plan pays the remaining 80%). Co-insurance percentages often differ across services, like a hospitalization versus a prescription fill.

 


 

Copayment

A copayment (or copay) is a fixed amount you pay each time you use a covered service.

If your plan says you have a $10 copay for generic prescriptions, you’ll need to pay $10 every time you pick up a generic prescription. Depending on the plan, copays may apply only after you meet your deductible (in which case, you’d pay the full price of healthcare services before then), or the plan is set up where you have copays both before and after you reach your deductible.

Copays usually don’t count toward deductibles, so keep that in mind when deciding what plan works for you. If the services you need all have copays and you need them frequently, that cost can add up even though you’re not getting any closer to your deductible. But copays—along with your deductible and co-insurance payments—usually count towards your out-of-pocket maximum.

 


 

Out-of-pocket maximum

An out-of-pocket maximum or out-of-pocket limit is the most you’ll have to pay for covered services in a plan year.

Before you hit your out-of-pocket maximum, you’re likely spending money on a lot of different services in the name of good healthcare: prescription medications, physical therapy, psychotherapy, specialists, etc. But only payments you make towards covered services count toward your maximum. Usually, that means your copayments, deductible and coinsurance.

After you reach your out-of-pocket limit, your plan will pay 100% of the cost of any additional covered healthcare services. But that doesn’t mean you want to just find the most expensive doctor or hospital out there. Most plans set what they think is a fair price for individual services and will only pay that much. This is often specified as an “allowed amount” for that service.

 

– – –

 

As you narrow down your list of potential insurance plans for 2019, we hope this guide clears up any confusion you might have about these foundational health insurance terms. In most states, the Open Enrollment period to sign up for a health insurance plan in 2019 runs from November 1, 2018, to December 15, 2018.

For more information about state-specific deadlines and what to expect for plans in 2019, see our blog post here.

And if you want more information about signing up for an individual health plan, we have a blog post on that, too.

Filed under