 Personal Finance, PowerPoint, Presentation, Co-Insurance and Co-Pays. Get ready to get financially fit by practicing personal finance. Remember that insurance is part of our long-term comprehensive risk management strategy where we're going to use the adage of measure twice, cut once, putting a formal plan in place such as setting our insurance goals, developing a plan to reach those goals, putting the plan in action, reviewing the results and repeating the process periodically. We're now talking about Co-Insurance and Co-Pays. Most of this information can be found at Investopedia, Co-Insurance vs. Co-Pays. What's the difference which you can find online? Take a look at the references, resources. Continue your research from there. This is by Allison Martin, updated March 3rd, 2022. Co-Insurance vs. Co-Pays. What's the difference? We've been talking about different kinds of insurance, noting that the health insurance can be more complex in some ways than other types of insurance due to laws and regulations and just the complexity of the medical industry. The classical kind of insurance we would be thinking about for like property insurance, for example, is that we might have some future event that we're trying to safeguard against. Possibly that event is not likely to happen, but if it were to happen, it would be a significant financial hardship. Therefore, we want to insure against it something like a house burning down. Similar kind of thing can happen with the insurance where we have a big health event that would be quite costly that we want to be insuring against. But we also have those other kind of maintenance type of things that we want to be insuring against as well. And those are kind of things that you can see why laws and regulations are trying to expand the insurance to cover the maintenance or the day-to-day or routine types of things, especially preventative care, which kind of takes on its own meaning. And that's a little bit different than what we think about in classical type of insurance. So it kind of skews up the story a bit and we get these other terminologies, more bureaucratic kind of terminologies and terms when it comes to the medical insurance that we've got to wrap our minds around. So we've got the coinsurance versus copays. There are two of those kind of terms. We've got to have some understanding of what's the difference between the two. Co-insurance and copays are both important terms for understanding the cost of health insurance. These and other out-of-pocket costs affect how much you'll pay for the health care and your family receive. So what is a deductible? So first we'll get into the deductible. Now the deductible is the classical kind of thing that we usually think about. If you have a deductible for like property insurance against a big event that might happen, then that's how much you have to pay before the insurance kicks in. And obviously if the deductible is higher, then that means you would have to pay more. And that also means that the premiums that you're paying for the policy might be less. So first to understand the differences between coinsurance and copays, it helps to know about deductibles. A deductible is a set amount you pay each year for your health care before your plan starts to share the costs of covering services. So for example, if you have a $3,000 deductible, you have to pay $3,000 before your insurance kicks in fully. So if you have any dependence on your policy, you'll have an individual deductible and a different higher amount for the family. What is co-insurance? Co-insurance is the percentage of covered medical expenses you pay after you've met your deductible. So you hit the deductible, you're going over the deductible. That would normally mean you'd say, okay, now the insurance company is going to kick in, but you might have a co-insurance after that point in time at a percentage basis. So your health insurance plan pays the rest. So for example, if you have an 80-20, 80-slash-20 plan, it means your plan covers 80% and you pay 20% up until you reach your maximum out-of-pocket limit. So you've got your deductible that you have to pay before the insurance kicks in and then you've got some co-insurance possibly. And if it was that 80-20, then you'd be paying 20% of whatever the bills are up until you hit the out-of-pocket maximum, which is kind of like the top or second tier deductible you can think of it as, where if you go above that point, then hopefully the insurance kicks in and takes over 100% after that point. So what you would like to have then is at least enough money clearly to try to clear the deductible and then have enough money in the event that you need to and have the enough money in the event that you need to to hit the maximum to kind of co-insure up to the maximum amount so that if there's some big health event that you could cover it if you needed to and then hopefully the insurance would kick in if that big event happened past that point. So still co-insurance only applies to cover services. If you have expenses for services, if you have expenses for services that the plan doesn't cover, you'll be responsible for the entire bill. If you're not sure what your plan covers, review your benefits booklet or call your plan provider. So what are co-pays then? The co-pays the other term, co-pay or co-payments are a set amount you pay to your medical provider when you receive services. So now these aren't on a percentage basis typically. They're going to be co-pays and they're usually going to be set dollar amounts so you know kind of what they are which can be kind of nice for the budgeting and typically they seem a little bit reasonable or not too high of a number whereas if you're talking about the co-insurance, you're talking about a percentage which of course will be dependent upon the bill. So co-pays or co-payments are a set amount you pay to your medical provider when you receive services. Co-pays typically start at $10 and go up from there depending on the type of care you receive. Different co-pays usually apply to office visits, specialist visit, urgent care, emergency room visits and prescriptions. Your co-pay applies even if you haven't met your deductible yet. For example, if you have a $50 specialist co-pay, that's what you'll pay to see a specialist whether or not you've met your deductible. So when we talked about the deductible, you got to clear the deductible before the insurance kind of kicks in but you've got the co-pays which are there at this point before you hit the deductible so you can be expecting to be paying these amount for these set kind of items or things that could be happening once again. Your co-pay applies even if you haven't met your deductible yet. For example, if you have a $50 specialist co-pay, that's what you'll pay to see a specialist whether or not you've met your deductible. Most plans cover preventative services at 100%, meaning you won't owe anything. So the preventative services now kind of take on its own meaning. So when you talk about the like day-to-day or the kind of routine visits to the doctor's visits, now you've got this other tier that you've got to think about and say, well, is it preventative because if it's preventative, then it might be at the 100% coverage whereas if it's not preventative and it's kind of the doctor's visits that might be more routine for some kind of sickness or something that you already have or something like that, then it's not going to be the 100% in that case and you got possibly going into the co-pays and so on from that point. So what are out-of-pocket maximums then? The next component, out-of-pocket expenses are healthcare costs that are not covered by insurance. For example, if your spending has not yet reached your planned deductible. So if you haven't reached the planned deductible, then you're going to have these out-of-pocket expenses, the amounts that you have to pay. So the out-of-pocket maximum is the maximum amount of out-of-pocket expenses you will have to pay in one year. So hopefully you don't hit that maximum, but that's kind of your, I would think about that from a traditional insurance point as kind of like your high point for like the high deductible point in the event that a big accident happened. Like for example, if your house burns down, usually you think about deductible up to some point and maybe you got to pay after that point. With the health insurance, you've got all these other things that take place with the deductible and the co-pays and the co-insurance and so on, but if there was a big event that you were really sick and you had to spend a lot of money on healthcare, an event that's kind of similar to the home burning down, a catastrophe kind of event, then you want to make sure that you're covered up to the maximum if you could and then that would be fairly safe coverage in the event of that big thing that could happen. So when you reach your out-of-pocket maximum, your health insurance plan covers 100% of call covered services for the rest of the year. Any money you spend on deductibles, co-pays, co-insurance counts towards your out-of-pocket maximum. However, premiums don't count and neither does anything you spend on services that your plan doesn't cover. Like deductibles, you might have two out-of-pocket limits, an individual one and a family one. Under the Affordable Care Act, the highest allowable out-of-pocket maximum is set at $8,550 for individual coverage and $17,100 for family coverage. In-network versus out-of-network. So now we've got this network situation. You've got to be in the network if you want the best benefit kind of thing. So some plans have two sets of deductibles, co-pays, co-insurance and out-of-pocket maximums. One for in-network providers and one for out-of-network providers. So you've got to look at your policy and say, you know, this whole network system, how the network system is set up, one way they might deal with the network system is say, if you go outside of the network, then we're going to have different limits on these components. So in-network providers are doctors or medical facilities with which your plan has negotiated special contracts. So they're in the network. Those are the people they're going to want you to be working with because that's part of the contractual agreement with those individuals. That's how they get their costs to be lowered, depending on the type of coverage that you have. So out-of-network providers are everything else, and they are generally much more expensive. Keep in mind that in-network doesn't necessarily mean you close to where you live. So the fact that it's in-network doesn't necessarily mean you've got the closest doctor around you because that's not how the network is structured. They're contractually networked to whatever insurance plan you have. You could have a North Carolina plan and see an in-network provider at the Cleveland Clinic in Ohio. Whenever possible, be sure you're using in-network providers for all of your healthcare needs. If there are certain doctors and facilities you'd like to use, be sure they're part of your plan's network. If not, it might make financial sense to switch plans during the next open enrollment period. Co-pay and coinsurance example. To help explain co-pays and coinsurance, here's a simplified example. Say you have an individual plan, no dependence, with a $3,000 deductible, $50 specialist co-pays, 80-20 coinsurance and a maximum out-of-pocket of $6,000. If you go to your annual checkup, which is free because it's a preventative service, and mentioned that your shoulder has been hurting, your doctor sends you to an orthopedic specialist for a $50 co-pay to take a closer look. So notice you went to the doctor and go into the doctor because that's a normal checkup. They're trying to get that normal checkup, and that would be like the more kind of routine kind of things that you'd be doing that's going to be under a preventative care possibly, so you might not end up paying that. But when they send you to check out this other thing, that's not part of the preventative care because that's something that has already happened. That's something hurting, so now you're going to maybe kind of more of a still kind of a routine doctor visit kind of thing to check something out, but it's not really preventative at that case. So you got the co-pay kicking in at the $50. That specialist recommends you to an MRI to find out what's going on. The MRI costs $1,500. You pay the entire amount because you haven't met your deductible yet. So in that case, you might have to pay the whole amount, on your deductible amount, as it turns out, because the MRI isn't one of the things listed with the co-pay kind of things, and it's not preventative care. So that's why you might have to pay it, because you haven't hit the deductible. So as it turns out, you have torn a rotator cuff and need surgery to fix it. No! The surgery costs $7,000. Oh my goodness, can't I just want to just fix itself? You've already said you paid $1,500 for the MRI, so you need to pay $1,500 of the surgery bill to meet your deductible and have the coinsurance kick in. So now you got that $7,000 bill because surgery starts to get expensive. Now we're going way higher than what normal people are able to self-insure, or we're getting to where normal people don't really have self-insurance too much past that point. But luckily, the deductible kicks in at that point. So you hit the deductible limit. So after that, you share 20%, which in this example is $1,100. So you went over the deductible, but you're not safe yet because that deductible, you still got to split it with the 20, it was the 2080. So you're paying the 20% until you kind of hit the maximum amount, and that's when they... So all in, your torn rotator cuff costs you $4,100. So I'm suing someone that tore that. I swear my neighbor hit me with something or something. So does coinsurance count toward the deductible? No, coinsurance is the portion of healthcare costs that you pay after your spending has reached the deductible. For example, if you have a 20% coinsurance, then your insurance provider will pay for 80% of all costs after you have met the deductible. So you go over the deductible, but you're not there yet because you still got to pay the 20% if you got a 2080 setup. What's a health insurance premium? A health insurance premium is the upfront cost of maintaining health insurance coverage. So you could take all these terms and you could kind of think about logically what would be the relation between increases and decreases with things like the deductibles of the coinsurance and so on, and the premium, the amount that you have to actually pay the insurance company for the coverage. So most premiums are paid on a monthly or bi-weekly basis. If your healthcare is provided by your employer, they will usually deduct the premium from your paycheck. What's a high deductible health plan? A high deductible health plan is an inexpensive health insurance plan with low premiums, but a very high deductible because they may come with significant out-of-pocket expenses. These plans are popular for young healthy workers with low routine medical expenses who are worried about catastrophic healthcare events. So you might be not visiting the doctor a lot, so you got the high deductible. You're not too worried about it, but you want to be covered in the event that you got that big costly event that happens. In addition, benefit of high deductible plans is the health savings account, which is only available to workers which the HDHP. These savings accounts are tax-free so long as the money is used for qualified medical expenses. Are copays and coinsurance tax deductible? Healthcare costs such as copays, coinsurance and premiums may be tax deductible if you exceed 7.5% of your adjusted gross income. So there's kind of a big limit on the healthcare kind of stuff. So you got the stuff that you'd have to pay and you got to figure out what you're paying for with the insurance and the money that you had to pay out-of-pocket. And then you need to be itemizing because if you take the standard deduction, you may not get a benefit for the taxes. And even if you are itemizing, instead of taking a standard deduction, there's this 7.5% basically adjusted gross income floor, which instead of a cap, like most deductions kind of phase out after you go over a certain limit, this has the floor, you got to clear the 7.5% before you get a benefit. So there's kind of a severe restriction, but if you have significant medical costs, then you might get some deduction from it. So if your healthcare expenses exceed that threshold, the amount over 7.5% can be deducted. Do all health insurance plans have copays and coinsurance? No. Some healthcare plans might not require customers to pay a copay for medical services, although these plans will typically come with high premiums. So the relationship is what you would expect. If you don't have any copays, then you would expect that the premiums you're paying are higher. It's going to be a more expensive plan. So on the other hand, a catastrophic health plan with a very high deductible may pay as much as 100% of many preventative expenses without coinsurance. What's the bottom line? Could you just get to the bottom point where you wrap it up and tell me what to do? So when you shop for a health insurance plan, the plan describes always specify the premiums, the amount you pay each month to have the plan, deductibles, copay, coinsurance, and out-of-pockets limits. You got to review all that stuff. In general, premiums are higher for plans that offer more favorable cost sharing benefits, obviously, because we're talking free market situation here. So you can't just make one of these things what you would like it to be without an impact on the premium typically. So if you're generally a healthy and careful person, a low-cost plan with higher limits may work for you. However, if you expect to have significant healthcare expenses, it might be worth it to spend more on premiums each month to have a plan that will cover more of your costs.