A Guide to Out-of-Pocket Healthcare Costs
If you find healthcare costs to be confusing, you’re in good company.
Not long ago, a study published in the journal Health Economics found that just 14% of Americans surveyed could correctly answer multiple-choice questions about deductibles, copayments, coinsurance, and maximum out-of-pocket costs. Just half could correctly answer questions about the cost of various health services, and only 11% understood how much they’d pay if they were hospitalized.
Those are scary statistics, particularly since the cost of health insurance and medical expenses takes up an ever-increasing percentage of your income. That’s why it’s so important to understand your responsibility for medical costs versus your plan’s. This knowledge can help you make the right decision when it’s time to choose your health insurance. Here are the key terms to know.
This is the amount you pay each month for your health plan. If you get your insurance through work, your employer also contributes to the cost.
This is the amount you must spend out of pocket each year before your health insurance company starts paying its share of your medical costs. There are some exceptions, such as preventive care and screenings, which are covered immediately at no cost to you.
This is the amount you pay for certain medical visits. For instance, you may pay a $25 copayment to see a gastroenterologist. That payment is typically due at your appointment. However, you are not charged a copayment for preventive care and screenings.
This is a percentage you pay for certain medical services, even after you’ve reached your deductible. For instance, many plans have a 20% coinsurance for hospitalization. So if the entire bill is $10,000, you pay $2,000. There is no coinsurance for preventive care and screenings.
Maximum out-of-pocket limit
This is the maximum amount you can pay each year for medical expenses. It includes the deductible, coinsurance and copayments—but not the premium. In 2017, the maximum out-of-pocket limit by law is $7,150 for an individual plan and $14,700 for a family plan. Check your health plan as your out of pocket maximums may be lower.
Services usually not covered
These are services your plan doesn’t cover. For instance, some plans don’t pay for investigational treatments. Others won’t cover the cost of out-of-network care, dental care, or eyeglasses. And few plans cover elective procedures like plastic surgery. Bottom line: For these services, you may have to cover the entire cost.
When choosing health insurance, it’s important to understand your responsibility for medical costs.
Premium: The amount you pay each month for your health plan.
Deductible: The amount you must spend each year before your health insurance company starts paying its share of your medical costs.
Copayment: The amount you pay for certain medical visits.
Coinsurance: The percentage you pay for certain medical services.
Maximum out-of-pocket limit: The most you can pay each year for medical expenses.
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- Auerbach DI, Kellermann AL. A decade of health care cost growth has wiped out real income gains for an average US family. Health Affairs. 2011;30(9): 1630-1663.
- Definitions of Health Insurance Terms. Bureau of Labor Statistics. http://www.bls.gov/ncs/ebs/sp/healthterms.pdf
- HHS Proposes 2017 Out-of-Pocket Health Plan Caps. Society for Human Resource Management. https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/2017-oop-caps.aspx
- Loewenstein G et al. Consumers’ misunderstanding of health insurance. J Health Econ. 2013;32:850-862.
- Preventive Health Services. Healthcare.gov. https://www.healthcare.gov/what-are-my-preventive-care-benefits/
- Services that health insurers often decline. Investopedia. http://www.investopedia.com/articles/insurance/09/services-health-insurers-do-not-cover.asp