Health insurance has always been a complicated beast, especially for the layman. We do our best to understand the differences between HMOs and PPOs, to find the best options for coverage, to figure out how to keep the doctors we’ve been seeing for years when we have to switch insurance due to changing jobs or life situations, and so on. Some of us rely on services like Medicare, Medicaid, disability, Social Security benefits, or veteran’s benefits to help with the cost of medical needs, further complicating the simple act of seeking healthcare and utilizing insurance. In short, it’s not surprising that you don’t fully understand how your health insurance operates. When it comes to paying your portion, the prospect can be equally confusing, with terms like coinsurance, deductibles, and copays being bandied about. What exactly are copays and how do they compare to other out-of-pocket costs?
Copay, or copayment, is part of what is called cost sharing, by which you and your health insurance provider split the cost of your medical bills in a prearranged manner. This is not to be confused with premiums, which you pay to your health insurance provider in exchange for your health insurance policy, regardless of whether or not you ever need medical care. Even with your premiums paid, however, you’ll likely still be on the hook to pay for some portion of medical expenses. The amount will depend on the provider and the policy you select.
There are three types of cost sharing to be aware of. First there is a deductible, which is a set dollar amount that you would need to pay before your health insurance pays a sizable portion — if not all — of your medical bills. When you select a health insurance policy, you will have the opportunity to choose from a number of set deductibles that could be several hundred or several thousand dollars. The lower the deductible you choose, the higher the premium you’re likely to pay. If you don’t need medical services much, you might select a higher deductible in order to lower your monthly premiums. Any time you use your health insurance and pay out of pocket for services the dollar amount you spend chips away at your annual deductible. If you do not meet your deductible in a given year it simply resets at the anniversary of your policy, and you start all over again.
Then there is coinsurance. Once you have paid your deductible and your health insurance swoops in to start footing the bills, you could still be responsible for coinsurance. You will likely still have to split additional costs with your insurance provider. Your coinsurance is the percentage of healthcare costs you’re expected to cover beyond your deductible. Again, your coinsurance percentage will be based on the plan you select. As an example, you could choose a plan where the insurance provider pays 80% of costs (after deductible) and you pay 20%. Also, a lower coinsurance percentage on your part will also likely mean higher premiums. As you are paying coinsurance you build up to your maximum out of pocket (MOOP); once the MOOP is paid, the insurance company pays 100% of your medical costs for the remainder of the policy year.
Finally, there is the copay, perhaps the least of all expenses associated with cost sharing. This is a small, fixed fee you pay directly to the healthcare provider each time you visit a doctor, hospital, clinic, or other healthcare facility. Copays can vary by the facility you visit and the service you seek – you might pay different copays for visiting an ER versus a private practice, or for seeking medical versus dental care. Many insurance policies also have copays for prescriptions. However, your insurance provider should spell out these costs for you when you first enroll in a policy so that you know in advance what expenses you have to pay up-front for healthcare services.
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