Understanding Your Health Insurance: Deductible, Co-pay, Co-insurance, and Out-Of-Pocket Maximum

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Understanding Your Health Insurance: Deductible, Co-pay, Co-insurance, and Out-Of-Pocket Maximum

Get free insurance advice on demand!

The costs of healthcare in the United States of America continue to rise every year. The majority of Americans rely on health insurance policies to pay for medical expenses. However, some don’t use or understand their health insurance policy. 



Part of the problem is that people don’t understand how health insurance works. The complex terms used by health insurance agents make it difficult for people to understand how much they will have to pay for the policy and what benefits it will provide to them. So we decided to clear the air about some complex terms used in the health insurance industry. 

We’ll help you understand health insurance premiums, deductibles, co-pays, co-insurance, and out-of-pocket maximum. 



Premium is the payment that you make to an insurance firm every month for your health insurance policy coverage. It is the main source of revenue for insurance companies. In order to profit, the money taken by insurance providers must be more than the amount they pay out to policyholders in benefits. Unlike deductibles and co-pays, you must pay premiums whether you have any medical expense or not. 

If you are on an employer-sponsored health insurance plan, then the premium will likely be deducted from your paycheck every month as pre-tax dollars. On the other hand, if you buy your own health coverage, then you can choose to pay the premium monthly, quarterly or annually. The amount you are required to pay in premiums varies depending on the medical expenses covered by the plan and the doctor you are allowed to see, among other things. 



The amount that you must pay before your health insurance coverage kicks in is called a deductible. Deductible amounts, similar to premiums, vary by health insurance plan but are generally stipulated as an annual maximum figure. A deductible is renewed every year, so you’ll have to face a different deductible every year even if you paid your deductible in full last year. 

Let’s say that your deductible is $3,000 and you undergo seven $500 medical procedures in one year.  You will have to pay for the first six procedures and the seventh one will be covered by your health insurance coverage.   

If the deductible of your health insurance policy is high, the monthly premium will be low and vice versa. Some plans might offer separate deductibles for certain services. Under some plans, you might not need to make a deductible payment. 

If you are mostly healthy and want to lower your monthly premiums, you can do so by increasing your deductible. However, you must know that if you have a huge deductible like $5,000 and get sick, you might have to pay $5,000 in medical bills out of your own pocket. 



A co-pay is a fixed amount that you are required to pay when seeing a specialist, visiting a doctor, visiting the emergency room or an urgent care facility, purchasing medicine or using any other routine service defined by your insurance coverage. Co-pays can increase for you if you are with the Health Management Organization (HMO) or Preferred Provider Organization (PPO) policy and receive treatment from a hospital that isn’t covered by your provider network. 

A few years ago, policyholders were allowed to freely choose the hospitals, clinics, and doctors for their treatment. However, as costs began to increase, insurance providers started searching for ways to cut down expenses. They ended deals with hospitals, clinics, doctors and several other healthcare providers that were offering lower rates. This allowed them to pass the savings to the people who buy health insurance coverage. Now co-pays and coinsurance are used by insurance companies to split costs with the insured.

You might be able to save money with the co-pay system, but it has made the healthcare more complex. Typically, you must now consider two different sets of fees: the ones that are set for healthcare providers in your approved networks and those that are outside your networks. Generally, if you see approved providers only, then fees will be much lower. 

The fees you have to pay as a co-pay varies depending on the service. For example, there is a different fee for visiting a family physician, a different one for seeing a specialist and another for going to an urgent care facility or an emergency room. Co-pays must also be paid for physical therapy, prescription drugs, and tests, among other covered expenses. 



Co-insurance is another way in which an insurance company splits the costs between themselves and the patient. It kicks after you have met your yearly deductible, after which a percentage of the costs would be paid by your insurance company while you will be required to cover the rest. 

Let’s say that your health insurance plan has a $1,000 deductible and 20 percent co-insurance and you use $10,000 in services. In this case, you will be required to pay the $1,000 plus 20 percent of the remaining $9,000, up to your total out-of-pocket maximum.

Out-of-Pocket Maximum 

Out-of-pocket maximum is one of the most important features of a health insurance plan. It limits the amount you pay every year for your healthcare including deductibles, co-pays, and co-insurance. 

Let us assume that the out-of-pocket on your health insurance policy is $4,000 and you get so sick that you require several healthcare services. The maximum you will be required to pay in one year is $4,000. After that, your insurance company will take care of the rest of the expenses.


Final Thoughts 

We hope you now understand the difference between deductibles, premiums, co-pays, co-insurance, and out-of-pocket maximum. When you are thinking of purchasing a health insurance policy, pay attention to these important terms as they will decide how much you will have to pay for the coverage and what benefits you will get. 


If you’d like to get a health insurance quote please visit our Health Insurance page for more information about how we found the insurance policies for our clients for over 30 years.

Speak with a Pawson agent for free and get Connecticut-specific insurance advice on demand.

Speak with a Pawson agent for free and get Connecticut-specific insurance advice on demand.

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