Copayments and deductibles are both features of most insurance plans. The deductible is the amount that must be paid for covered health care services before the insurance begins to pay. Copayments are usually charged after the deductible has been reached. However, in some cases, the copay is applied immediately.
Copayments and deductibles are two parts of the health insurance equation. In general, plans that charge lower monthly premiums have higher copays and higher deductibles. Plans that charge higher monthly premiums have lower copays and lower deductibles. When choosing a plan, consider whether you expect significant medical bills. If so, it may make financial sense to buy a more expensive plan with lower deductibles and deductibles. Of course, also pay attention to the maximum out-of-pocket cost limit.
What is a copay?
A copayment (short for copayment) is a fixed amount a health care beneficiary pays for covered medical services. The remaining balance is covered by the person’s insurance company. Copays often vary for different services within the same plan, especially when they relate to services that are considered essential or routine and others that are considered less routine or in the domain of experts. Out-of-pocket costs for standard visits are generally lower than out-of-pocket costs for specialists. Note that emergency room visits tend to have the highest copays.
What is the deductible?
Some plans have separate deductibles for prescription drugs or other services. For family plans, there is usually an individual deductible and a family deductible.
The deductible is the fixed amount a patient must pay each year before their health insurance benefits start paying. After the deductible is met, the beneficiary typically pays coinsurance (a percentage of the cost) for any services covered by the plan. They continue to pay coinsurance until they reach their out-of-pocket cap for the year.
In most cases, preventive services are covered at 100%, which means that patients do not pay anything for the appointment. Routine exams and other screenings considered preventive, such as mammograms and colonoscopies, are fully paid for through programs offered through the Patient Protection and Affordable Care Act.
Suppose a patient has a health insurance plan that includes $30 out-of-pocket to see a primary care physician, $50 out-of-pocket to see a specialist, and $10 out-of-pocket for generic drugs. Patients pay these fixed amounts for these services, regardless of the actual cost of those services. The insurance company pays the remaining balance (the “coverage amount”). So if the cost of visiting a patient’s endocrinologist (specialist) is $250, the patient pays $50 and the insurance company pays $200.
Now assume the same patient has a $2,000 annual deductible before insurance starts paying, and a 20% coinsurance thereafter. In March, he sprained his ankle while playing basketball, and cost $300 to treat. He paid the full cost because he hadn’t paid the deductible. In May, he had back problems that cost $500 to treat. Again, he paid the full cost. In August, he broke his arm while playing football which cost him $3,500 in hospital. On this bill, the patient pays $1,200—the remainder of his deductible. He also pays 20% (his coinsurance amount) once the deductible is reached. In this case, that would be an additional $300 (20% of $1,500 – the difference between the deductible and the hospital visit).