Are you frustrated with the confusing jargon related to out-of-pocket health insurance costs? If you’re new to health insurance, the terminology can be overwhelming, making it challenging to determine the overall cost.
While the monthly premium is an obvious expense, you must consider other crucial costs. Understanding these out-of-pocket costs is essential to choosing the right health plan.
Don’t let insurance terminology get in the way of finding good health insurance for yourself and your family. We can help. This guide to understanding out-of-pocket costs in health insurance plans explains all you need to know.
Understanding How Out-of-Pocket Costs Affect What You Pay
When choosing a health insurance plan for themselves or their families, most people focus on the monthly premium. However, the monthly premium is not the only cost to consider. There are also deductibles and out-of-pocket expenses like copays and coinsurance.
But do they influence each other? Yes, they do. There is an interesting relationship between premiums, deductibles, and other out-of-pocket costs that you can use as a guide when selecting a health plan.
With a quick look at the wide variety of health plans on the market, you will easily see that most health insurance plans usually have:
- Lower premiums with higher deductibles, coinsurance, and copays
- Higher premiums with lower deductibles, coinsurance, and copays
While not always the case, ACA health plans on the lower tiers (Bronze and Silver) have lower premiums and higher out-of-pocket costs. In comparison, higher tiers (Gold and Platinum) have higher premiums and lower out-of-pocket costs.
A higher deductible plan is usually a good bet if you’re looking for lower premiums. Find out more about high-deductible plans here.
Some plans have lower premiums with higher out-of-pocket costs. Others are the other way around. The type you choose determines how much you’ll pay monthly to keep your policy active and out-of-pocket each time you need health care.
Premiums Vs Out-Of-Pocket Costs
The premium is the monthly amount you’ll pay for your health insurance policy. The premium you are quoted when you apply for a health plan will remain fixed throughout the year of coverage. And you have to pay it every month, regardless of whether or not you use your insurance coverage at that time.
The premium is a constant payment to a fixed monthly schedule. Paying it keeps your health insurance policy active and allows you to access various healthcare benefits.
An insurance deductible is a fixed amount you must reach before your insurance coverage takes over – a health insurance deductible works in the same way as deductibles on other types of insurance policies.
Therefore, a health insurance deductible must be reached before your health plan covers your medical expenses. Therefore, before the deductible is reached, all medical bills will be at your own expense or ‘out-of-pocket.’
The exact amount of the deductible differs between health insurance plans. Some have higher deductibles than others. But your other out-of-pocket expenses, like copays and coinsurance, may be lower when they do.
The average deductible for employer-sponsored health plans is $1,992 for an individual plan and $3,811 for family coverage. When you purchase an individual health plan through the Health Insurance Marketplace, the average deductible is $2,825.
Copays And Coinsurance
Health insurance plans can have other out-of-pocket costs like copays or coinsurance and sometimes have both. These are the out-of-pocket costs that apply after the deductible has been reached.
Although meeting your deductible means that insurance will cover your medical bills, they are not 100% covered. You will still be liable for a portion of your medical costs. That’s why copays and coinsurance are also referred to as forms of cost-sharing.
- The copay is a fixed dollar amount you will pay for medical expenses. Every time you go for a specific medical service or treatment, you’ll pay that amount, and the insurer will pay the rest.
- Coinsurance is not a fixed dollar amount but rather the percentage of your medical expenses that you’ll be paying. You pay that percentage of the bill each time, and the insurer covers the rest.
If you’re worried that you will be at the mercy of out-of-pocket costs indefinitely, we have good news for you. Out-of-pocket maximums prevent this. All health insurance plans sold in the US are required by law to have a yearly limit on what a policyholder has to spend out-of-pocket.
Once you have reached the out-of-pocket maximum (OOPM) figure, you will not have to pay any further copays or coinsurance for the rest of the year’s coverage. It does not include monthly premiums. The out-of-pocket maximum also does not cover any health/medical service not covered by your specific plan.
If you visit a doctor’s office or medical facility outside of your plan’s network, your insurance will not cover it and you will pay for these services out-of-pocket. They will not count toward your OOPM.
There are two exceptions, though.
- Despite having a preferred provider network, some plans may allow you to use out-of-network providers in certain instances. In such cases, these services may count towards a separate, out-of-network, out-of-pocket maximum.
- Other plans may allow out-of-network services to count towards your maximum but will raise the maximum higher than it would otherwise have been. Fortunately, a federal limit is in place to prevent the OOPM from becoming too high.
Please note that not all ACA plans will necessarily let out-of-network services count towards the maximum. This may not be allowed by the insurance company you choose. They are not obligated to allow this, so always check the fine print beforehand so you don’t get any surprises later.
What Health Care Expenses Count Toward An Out-of-Pocket Maximum?
The out-of-pocket maximum includes copayments, coinsurance, and even deductibles. Every time you pay for qualifying health and medical services, they count towards the OOPM. To qualify, they must usually be only services that your plan covers and network providers that your plan allows (see exceptions above).
But there is a limit to this maximum, so you don’t have to shoulder too many costs alone. On insurance plans found in the ACA marketplace, this maximum figure is established each year and adjusted at the start of each new coverage year.
A plan’s OOPM can be lower than the ACA’s limit but never higher. At the time of writing, the 2024 OOPM figure is $9,450 for self-only coverage and $18,900 for family/other coverage. This is approximately 3.8% higher than the limits set for ACA plans in 2023.
Once a family has collectively reached their out-of-pocket maximum, the eligible healthcare expenses of every family member are covered in full by their insurance. This applies regardless of whether or not each has reached the plan’s individual OOPM.
Is It Better To Pay Out-of-Pocket Or Use Health Insurance?
Is it better to just pay out-of-pocket for everything than, and avoid all the bother of insurance? This is a question many people new to insurance ask themselves. The answer is not always straightforward, though.
Choosing to self-pay depends on your situation. Are you a single person who rarely goes to the doctor? If you know you won’t reach that deductible any time soon, you may be tempted to shop around for better cash prices for your minimal healthcare needs.
Basic healthcare services and minor medical services can sometimes be cheaper for cash. However, life is unpredictable. A medical crisis may be around the corner without you even being aware. You’ll need the safety net of health insurance to deal with the necessary medical expenses of that crisis.
If you have been going without insurance for some time, your cash payments have not counted towards a deductible. And when you start using insurance, you’ll start from the beginning. You’ll pay out-of-pocket and work towards a deductible when you need insurance coverage!
So make the best decision for your financial situation. But as a rule, having and using health insurance is better. Your insurer will already have negotiated reasonable prices with their network providers, so you get quality health care at affordable rates.
To find the best health insurance plan for your budget, you must consider the monthly premiums and all the other costs. Out-of-pocket costs seem complicated initially, but once you understand what they are and how they work, choosing a health plan is easier.
Enhance Health will make it even simpler.
Our trained consultants have first-hand knowledge about ACA-compliant health insurance. We know all the ins and outs of out-of-pocket costs and will help you find a health insurance plan suited to your unique needs. Give Enhance Health a call today.