Insurance 101: Copays, deductibles, and premiums…oh my!

Health insurance is complicated and confusing, even for those of us who are out here delivering healthcare for a living. In this series, we are going to break down healthcare insurance terminology, starting with the conglomeration of words (copays, deductibles, and premiums…oh my) that add up to who pays what when.

Health insurance card and stethoscope

Premiums: This is the set amount of money you are expected to pay every month or with every paycheck to pay for your insurance. For most hospital-based employees, this is going to be a set amount every paycheck. Even if you go the whole year without seeing a doctor or using any sort of healthcare service, you will pay this amount.

Deductible: This is the amount of money you will have to pay for your medical care before your health insurance benefits kick in. For example, if you have a $1000 deductible, you will have to pay $1000 out of pocket before insurance starts paying their portion. However, preventive services as defined by the Affordable Care Act (e.g., annual and/or well-child exams, vaccines, etc.), are typically exempt from the deductible. These preventive services must be provided by in-network providers to be exempt from the deductible.

Let’s quickly discuss “high-deductible health plans,” often referred to as HDHPs. In general, these plans feature higher yearly deductibles (hence, the name) and lower monthly or per-paycheck premiums. At the time I’m writing this, the minimum deductible for these plans $1700 for individuals and $3400 for families. The other big thing to know about HDHPs is that having one qualifies you to have a Health Savings Account (HSA). We will discuss HSAs at a later date.  

Copay: These are set dollar amounts you are expected to pay for a specific healthcare service, such as office visits, ER visits, and prescriptions, to name a few. For example, if your insurance has a $20 copay for a sick visit to your primary care doctor, you will pay $20 for that appointment, usually when you arrive for the appointment. These are more common in lower-deductible plans. Most of the time, you will pay set copays before and after you have met your deductible, and they often don’t count towards your deductible. It’s also important to verify what the copay is for different services. For example, a visit to your PCP is going to have a lower copay than a visit to a specialist or to the ER.

Coinsurance: These are set percentages you are expected to pay towards healthcare services. Coinsurance is common in high-deductible insurance plans, but can be found in other plans, as well.  Unlike copays, they kick in once your deductible has been met. For example, say you have a $1000 deductible and 20% coinsurance on ER visits, and a visit to the ER is $5000. You would be expected to pay $1000 towards your deductible. Your insurance benefits would then kick in, and you would pay 20% of the remaining $4000 (so, around $800), while your insurance covers the other 80%.

When deciding on what sort of health insurance plan works best for you, consider your typical healthcare costs. Do you have chronic health issues that require expensive medication or frequent visits to a specialist? Do you know you have an upcoming surgery or hospitalization (for example, childbirth).  If so, it might save you money to select a lower-deductible plan with higher premiums (or more money coming out of your paycheck). If you are generally healthy, a higher-deductible plan might make more sense for you. Of course, you will have to pay more if you end up having an unexpected illness, injury, surgery, or hospitalization. If that sounds too risky, you may also benefit from paying higher premiums.

Finally, it’s important to note that if you are under the age of 26, you can continue to be covered by your parents’ health insurance (at the time of this writing, anyway). They must be insured privately or through an employer (If they have Medicare for health insurance, you cannot be covered by it). If they already have your siblings on their plan, it might not change the amount of money they pay for their premiums, and it will save you from having to pay premiums. If you stay on your parents’ plan, make sure to ask them what the deductible and copays/coinsurance benefits look like, because you will likely be responsible for those costs.