Using your insurance plan might be easier when you are familiar with common health care terms and what they mean. It can also make it easier to manage your costs when you learn what the cost terms will mean for your wallet. Here are the differences between copays, coinsurance, and out-of-pocket maximums.
What is Copay?
A copay, or copayment, is a fixed amount you will pay for a covered health care service, usually at the time of the service. How does the copay work? You may remember when you went in for a doctor’s visit and paid a $20 or $25 copay after your visit. Copay amounts can vary depending on both the provider and the service. With health plans that have copays, not all do, you will know exactly what you must pay ahead of time, which will help you budget your health care costs. For many plans, your copay will not apply toward your deductible. Some services could be covered at no additional cost, such as annual wellness exams and other preventive care services.
What is Coinsurance?
Coinsurance means a percentage of the cost of a covered service. Until you reach your plan’s deductible, you will pay 100% of out-of-pocket costs. After you have met your deductible, you and the insurance company each pay a share of the costs, which add up to 100 percent. Common coinsurance ranges from 20% to 40% for you, with your plan paying for the balance. But cost-sharing percentages will vary depending on your plan. How does coinsurance work? If your doctor’s visit costs $100 and you have met your deductible, your coinsurance payment of 20% would be $20 out of pocket. Your insurance plan would then pay the rest of the allowed amount, or $80. This does not apply until after you have reached your deductible. Until then, you will need to pay 100% of the cost.
What is an Out-of-Pocket Maximum or Limit?
You may have heard terms like out-of-pocket maximum or limit. They mean the same thing. Your out-of-pocket maximum or limit is the highest amount you could pay during a 12-month coverage period for your share of any costs. Usually, copays, deductibles, and coinsurance all add toward your out-of-pocket maximum. Your monthly premium, balance-billed charges, or anything your plan does not cover, such as out-of-network costs, do not.
For example, if the provider’s charge is $100 and the allowed amount is $70, the provider might bill you for the remaining $30. A preferred provider may not balance bill you for the services covered.
How Does an Out-of-Pocket Maximum Work?
If you reach your out-of-pocket maximum, your plan most often pays 100% of your covered health care costs, up to the allowed amount. Let us say you have an annual out-of-pocket maximum of $6,000. This means once you have paid $6,000 out of pocket in that year for your covered health care, usually including deductibles, copays, and coinsurance, your plan will cover any future, covered, in-network, health care services during your coverage period. If your provider charges more than the plan's negotiated rate amount, you may have to pay the difference, a balance-billed charge.
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