Health Insurance companies: Deductibles, Copay, Premiums & Out-of-Pocket Costs

Confused by health insurance terms like copay, deductible, premium, and co-insurance? This complete guide explains how each works, how to choose the right plan, and what your out-of-pocket maximum really means. Understand your health coverage with confidence.

If you have a health insurance plan, or you're in the market for insurance, you may be feeling a bit overwhelmed, and maybe confused by all the terms being used, copay, deductibles, premiums, co-insurance, individual out-of-pocket maximum. Add the fact that many of these can vary widely based on the coverage or plan, and you've got a lot to wrap your mind around. In this video, we're going to break down and demystify these essential health insurance terms, explain how the costs work for both you and your insurance company, and hopefully make you feel a bit more confident about how your plan works. So let's get started.

The Three Levels of Health Insurance Costs Explained

Sort of the view from 10,000 feet is that there are three levels of healthcare costs, and the higher your costs for the year, the higher up you go, level one, level two, level three. On level one, you pay for everything. When your healthcare expenses get to a certain point, you enter level two, where you and your insurance company share the costs. And if the money you're paying out of pocket hits your plans cap, then you enter a level three, where your insurance will cover everything further. We'll circle back to this at the end. It'll all make a little more sense.

Types of Health Insurance Plans and Coverage Options

Now, whether your health insurance is provided through your employer plan, through somebody else's employer plan, or a government-issued plan like Medicare or Medicaid, they all have a set amount for premiums, deductibles, copay, and co-insurance. These are all terms that represent your out-of-pocket costs. If you don't know what those figures are for your policy, contact your insurance company to request a copy of your policy.

Breaking Down Health Insurance Terms

Now, I just throw a bunch of terms at you. Let's define these suckers.

What Is a Premium in Health Insurance?

Think of your premium like a monthly subscription fee, like your Netflix subscription. This is how much you pay each month to keep your insurance active. And you pay this even if you never go to the doctor. Just like with Netflix, even if you don't watch anything, you're still paying your subscription, right?

What Is a Deductible in Health Insurance?

Your deductible is amount specified by your plan that you have to pay in a given year before your insurance pays a dime. For example, if your deductible is set at $4,000, and the bill for your visit to the hospital was $2,000, you have to pay a 100% of that bill, bummer. But if your deductible is set at $4,000 and the hospital bill is $8,000, insurance would kick in to help cover half of that bill. Notice that I said it will help. More on that later. The good news is that this is an annual deductible, meaning that once you've paid that amount towards covered medical expenses, you don't have to pay it again until your plan resets. Often, this is on January 1st, but that's not always the case. You should check with your insurance provider.

High Deductible vs Low Deductible Health Plans

When shopping for health insurance, it's great to look for a plan with a low deductible. However, there is of course a trade-off. Plans that feature a low deductible come with higher monthly premiums, while plans with lower monthly premiums have high deductibles. So why choose one over the other? Well, it comes down to what you anticipate your usage will be. If you usually go for one, maybe two doctor's visits per year, you probably want it high deductible with low premiums. These are often referred to as catastrophic coverage plans, because they aren't going to kick in until something really significant, or catastrophic happens. On the other hand, if you visit the hospital a lot, or you have some upcoming procedures, then you probably wanna go with a high premium, low deductible plan. If you have a health insurance usage history, you can use that to help determine which kind of plan is gonna be best for you.

What Is a Copay in Health Insurance?

Your copay is a set cost that you pay for a covered healthcare service, such as visiting an in-network doctor, a specialist, or buying drugs. Let's say you go to see your doctor who charges $250 for an office visit. But your insurance has a copay of $50 for doctor's visits. You pay $50, and your insurance picks up the rest. Well, hold on a second. How do copays work if I haven't met my deductible yet? Because copays are paying for some of your medical expenses. Doesn't that not kick in until after you hit your deductible? Well, confusingly, it depends on your policy. So that's something you really wanna check on.

Preventive Care Benefits Covered by Health Insurance

Here's a tip, your insurance will likely have a list of preventative care benefits that they'll cover at 100%, no copay, no deductible, no co-insurance. These often include vaccines and many types of screenings, so take advantage of those.

What Is Co-Insurance in Health Insurance?

Remember when I said that insurance would help cover costs that exceed your deductible? That's where co-insurance comes in. Co-insurance is a shared cost between you and the insurance company. So depending on your policy, it may say that after your deductible, you pay 20% and your insurance company pays 80%. That's called an 80/20 policy. Now, for the ease of math, let's say you have a 50/50 policy with a $4,000 deductible, and you just had an $8,000 ER visit. You pay the first $4,000 to meet your deductible, and then the second $4,000 would be split 50/50, meaning you'd pay 2,000 of that. So for that $8,000 ER visit, you'd be out $6,000.

Understanding Individual Out-of-Pocket Maximum

Out of pocket is the amount of money that you pay. This includes your copays, doctor's visits, co-insurance, deductibles, drugs, and the out-of-pocket maximum is your plan's cap on how much you have to personally pay towards your healthcare costs. After you hit that maximum, 100% is covered by your insurance.

What Is a Family Out-of-Pocket Maximum?

Based on what individual yearly out-of-pocket is, you can probably guess this one. It's the cap on the medical costs for a whole family.

How Health Insurance Levels Work Together

Now, let's bring back the three levels example from the beginning. Now, you start in level one, paying basically everything out of pocket, that is, until you reach your deductible, and that's when you go to level two, and that's where you're splitting the cost with your insurance company through co-insurance. If your medical expenses get so high that the total of what you paid reaches your yearly out-of-pocket maximum, you move to level three, where all further healthcare expenses for the rest of the year are 100% covered by your insurance plan. When your plan resets for the year, you start back at the beginning. Usually, this happens on January 1st, but some plans differ on their reset date.

How to Get Help Understanding Your Health Insurance Plan

If you're still feeling unsure about what this all means, or about your financial responsibility for your covered services, your local healthcare facility can often help you obtain and understand this information, especially when considering an upcoming service or appointment.

FAQs About Health Insurance Terms

1. What are the most important health insurance terms to understand?

The key terms include premium, deductible, copay, co-insurance, and out-of-pocket maximum. Understanding these helps you calculate your total annual healthcare costs and choose the best plan.

2. What is a health insurance premium?

A premium is the monthly fee you pay to keep your health insurance active, similar to a subscription. You must pay this amount even if you don’t use medical services.

3. What is a deductible in health insurance?

A deductible is the amount you must pay for covered medical expenses each year before your insurance company begins to share the costs.

4. What is a copay, and how does it work?

A copay is a fixed amount you pay for certain medical services like doctor visits or prescriptions, while your insurance covers the remaining balance.

5. What is co-insurance in health insurance?

Co-insurance is the percentage of medical costs you pay after meeting your deductible. For example, in an 80/20 plan, you pay 20% and your insurer pays 80%.

6. What is the out-of-pocket maximum in health insurance?

This is the most you’ll pay in a year for covered services, including copays, deductibles, and co-insurance. Once you reach it, your insurance covers 100% of additional costs.

7. What’s the difference between high-deductible and low-deductible health plans?

High-deductible plans have lower monthly premiums but higher upfront costs when you need care. Low-deductible plans cost more monthly but cover more early on.

8. Are preventive care services free under health insurance?

Yes, many insurance plans cover preventive services like vaccinations and screenings at 100%, meaning no copay or deductible applies.

9. How do family out-of-pocket maximums work?

A family out-of-pocket maximum caps the total medical costs for all members under one plan in a given year. Once that limit is reached, the insurer covers 100% of further expenses.

10. How can I choose the best health insurance plan for my needs?

Evaluate how often you visit doctors, your prescription costs, and your budget. Choose a plan that balances monthly premiums with expected medical expenses.

Conclusion: Understanding Your Health Insurance Costs

Hopefully, this video has helped you feel a little more comfortable with the costs involved in your health insurance.