What do ‘deductible’ and ‘coinsurance’ mean? Consumer Q&A
At the risk of making a Gloria Estefan reference, it’s true: the words get in the way, don’t they? Whether you’re buying a house, a car, or health insurance, the language you’re going to come across in the contract is guaranteed to be confusing. It’s a law, I think.
When it comes to health insurance, confusion about the meaning of basic terms can prevent you from understanding which plan best meets your benefit needs and budget. This is especially true when it comes to cost-sharing terms. You could end up with the wrong plan based on a wrong understanding of a word like “coinsurance,” for example.
Last week on Yahoo Answers we took a question from someone looking at health insurance quotes. She wanted to know: what is a “deductible” and what does “coinsurance” mean? She also wanted to know what it meant when a deductible was given as two separate numbers, like “$2,000/$4,000.”
The eHealthInsurance reply was voted Best Answer:
Written that way it usually means that the deductible for a single person is $2000, or $4000 for a family, and the same with the out-of-pocket max. The coinsurance is the percentage of the charge you pay for covered services typically after your deductible is met but before your out-of-pocket max is met.
It’s confusing, I know.
If you’re shopping for the first time, I’d suggest that you check out our free online health insurance buyer’s guide. You’ll find some good basic information, tips, and definitions of key terms. Here are a few definitions that might come in handy right away:
“Premium”: Your premium is the amount you pay to the health insurance company each month to maintain your coverage. When trying to understand the cost of a health insurance plan, the premium is the first thing to consider. But make sure to balance it against other costs, such as copayments, deductibles and coinsurance. A good rule: choose a lower premium/higher deductible if you want to save money now, and a higher premium/lower deductible if you want to be more financially prepared for unexpected medical expenses later.
“Copayment”: Your copayment, or “copay,” is the specific dollar amount you may be required to pay up front for a specific type of service. For example, your health insurance plan may require a $15 co-payment for an office visit or brand-name prescription drug, after which the insurance company pays the remainder of the charges. A good rule: if you make frequent doctor’s office visits, make sure you choose an affordable and consistent copayment.
“Deductible”: Your annual deductible is the amount you may be required to pay out-of-pocket before the insurance company will begin paying for your medical claims. Keep in mind, your monthly premiums and copayments will often not count toward your deductible. Not all plans require a deductible, but choosing a plan with a higher deductible can keep your monthly premiums lower. A good rule: keep your deductible to no more than 5% of your gross annual income.
“Coinsurance”: Coinsurance is the amount that you are obliged to pay for covered medical services after you’ve satisfied any co-payment or deductible required by your health insurance plan. Think about it this way: the insurance company may limit coverage for certain services to, say, 80% of charges. So, for example, if your insurance benefits cover 80% of x-ray charges, you will need to pay the remaining 20%, even if your annual deductible is already met. That 20% is considered coinsurance.
“Maximum Out-of-pocket Costs”: Pay attention to this amount when considering a new health plan. Your maximum out-of-pocket cost sets a limit to your annual financial liability. Once you have paid out of pocket (typically through deductibles, copayments or coinsurance) to the “maximum” amount, the insurance company pays the full charges for any additional covered medical services rendered that year. Your monthly premium will not count toward your maximum out-of-pocket costs.
Photo via Flickr user DorkyMum