When shopping for health insurance plans, pay close attention to the size of each plan's deductible. Simply put, a plan's deductible is the amount of money that the policyholder must pay in health care costs before the insurer will begin to cover any claims. However, a deductible consists only of "out-of-pocket" expenses. If a $135 prescription costs you $25 in co-pay, only the $25 go toward your deductible.
Deductible Size vs. Premium Size
Most health insurance policies share several common features. The "premium" is the monthly fee that one must pay to be considered a part of the plan. For health insurance offered through an employer, the premium can be paid entirely by the employer, partially by the employer or entirely by each employee. In the latter two cases, the premium is deducted from the employee's paycheck.
The deductible is a specific amount that a policyholder must pay out of pocket each year before the plan's full coverage begins. The premium and the deductible have an inverse relationship. Plans with low deductibles have higher premiums than plans with high deductibles. Similarly, a plan with low premiums may be more affordable but might have a very high deductible.
Co-insurance and Co-payments
Plans may also include "co-insurance" and "co-payments" for certain procedures, medicines and doctors. With these features, the insurer agrees to pay a certain percentage of the total cost if the policyholder pays the rest. For example, if a policy offers "80/20" co-insurance on bunion surgery, the podiatrist's office would submit the claim to the insurer and the insurer would send the doctor a payment for 80 percent of the procedure's cost. The policyholder would then receive a bill for the remaining 20 percent.
While co-insurance for procedures is based on a ratio, co-payment for prescriptions and office visits is typically a fixed amount. For example, a $20 co-payment for doctor visits means that the policyholder pays the receptionist $20 after the appointment while the remaining balance is submitted to the insurer.
Even after a deductible is met, there are still limits. A policy's lifetime maximum refers to the maximum amount in claims that it will cover during the life of the holder. In a given policy, there is a lifetime maximum for an individual as well as a separate lifetime maximums for families. For example, if John Smith gets into a serious car accident, XYZ Insurance would cover up to $250,000 of his medical costs. Any costs beyond this would be John's responsibility. However, if his wife and two kids are also in the accident, the plan would cover up to $400,000 of the entire family's medical costs. In the latter case, $250,000 would go toward John's costs and $150,000 would go toward the rest of the family's bills.
In the health insurance industry, "exclusion" refers to any procedure, service, medicine, item or physician whose cost isn't covered by that particular plan. For example, many plans exclude elective plastic surgery, tutors for learning disabilities, experimental medicine, vasectomy reversal or private nurses.
If an insurance plan won't cover a particular expense, the policyholder must pay for it himself. However, he is not allowed to count that amount toward his deductible.
Some health insurance policies have different deductibles for different types of medical care. For example, a prescription deductible refers to the amount of out-of-pocket money a policy holder must spend on medication before the plan's coverage begins. Similarly, a hospital deductible refers to the amount a policy holder must pay before coverage starts. However, in the case of the hospital deductible, the deductible can be met and coverage can begin within the course of a single visit.
For example, suppose that a policyholder who had never been to a hospital before went to the emergency room because of chest pains. While in triage, she collapsed and went into cardiac arrest. Luckily, the ER doctors managed to save her life with an emergency surgery. Her policy had a $2,000 hospital deductible and a $100,000 lifetime maximum. The medical costs from her ordeal came to a total of $103,000.
In this case, the billing department would subtract $2,000 (her hospital deductible) from the outstanding balance and add it to her out-of-pocket bill. Next, billing would submit a $100,000 (her lifetime maximum) claim to her insurer. The remaining $1,000 (i.e. $103,000 - $2,000 - $100,000) would be added to her out-of-pocket bill. In the end, she would be responsible for $3,000 of the total $103,000.
A Chicago-based copywriter, Andy Pasquesi has extensive experience writing for automotive (BMW, MINI Cooper, Harley-Davidson), financial services (Ivy Funds, William Blair, T. Rowe Price, CME Group), healthcare (Abbott) and consumer goods (Sony, Motorola, Knoll) clients. He holds a Bachelor of Arts in English from Harvard University but does not care for the Oxford comma.