Healthcare can be confusing. Before you even step foot in the doctors’ office, you’ll need to understand the terminology and concepts surrounding health insurance. Knowing the difference between premiums, co-pays, co-insurance and deductibles will allow you to be a savvy healthcare consumer, help you anticipate out-of-pocket expenses, and avoid costly surprises.
Premiums
Your premium is the amount of money you pay for your health insurance coverage. Premiums are usually paid monthly. If you obtain health insurance through your employer, your premium may be deducted directly from your pay check. Often, your employer will contribute a portion of the premium payment, making health insurance more affordable for you.
If you are a Medicare recipient, you may pay a premium for your coverage. Generally, Medicare Part A, hospital coverage, is provided with no premium to those over 65 who also collect Social Security or who are eligible for Social Security but elect to wait to collect it. There is a premium for Medicare Part B, which covers doctor’s visits, outpatient therapy and durable medical equipment. This premium is paid monthly; for some people, the amount is deducted from their Social Security payment.
Out-of-Pocket Costs
Out-of-pocket costs refer to the amount you will pay for medical services out of your own pocket, in addition to your premiums. There are three main types:
- Annual deductible – this is the total amount that you are responsible to pay before your insurance coverage kicks in. Plans with higher premiums tend to have lower annual deductibles; those with lower premiums will have higher annual deductibles. Costs of hospitalization, procedures, laboratory testing and surgery may be applied to your deductible. Co-payments and premiums do not count toward your deductible.
- Co-insurance – this is the amount you are responsible for after your annual deductible has been met. Together, you and your insurance company will share the total cost of your medical care.
- Co-pay – this is the amount that you are required to pay to your provider for an office visit or prescription.
Once your out-of-pocket maximum has been reached, you will likely no longer be responsible for co-pays and co-insurance.
Your costs may vary depending on whether you select an in-network or out-of-network provider. For this reason, it is important to read and understand your health insurance policy so that you can make informed decisions about when and where to obtain care and anticipate how much your care will cost.
Still have questions?
Contact Care Answered. If you are trying to understand medical bills, or planning for future care needs, we can help you untangle the mess and make wise, well-informed decisions.