Health insurance is coverage you pay for, and typically, you share in the costs associated with your medical care. This is known as cost-sharing, or the portion of the health care costs that the patient is responsible for.
Cost-sharing is easily defined as your deductible, copay, or coinsurance that is in your health insurance plan. Most plans have some, if not all, of these cost-sharing options.
What Is The Purpose Of Cost Sharing?
Cost-sharing ensures everyone pays their fair share and no one party is financially burdened. Cost-sharing helps cut down on the premiums you pay and how much money the insurance company pays. This ultimately helps keeps the cost of health insurance down as well because it’s less money that the insurance company has to recoup.
How Does Cost Sharing Work?
Cost-sharing means that you, as the policyholder or covered person, pay a part of the health care costs in conjunction with what the health insurance company pays.
Note that your insurance premiums are not considered cost-sharing because you pay this whether or not you use the coverage provided. Cost-sharing only applies when you are using coverage on your policy, and includes the following:
A deductible is an amount you pay before your coverage begins from your policy. Many policies have a pretty high deductible that you must meet for coverage to start. In 2022, the average deductible was over $1,000. A deductible is considered cost-sharing because you are paying for a health care cost.
For example, if you have a $1,000 deductible and you visit the doctor who charges you $250, you have now paid $250 of your deductible. You have $750 to go before your coverage begins.
A co-payment is a little different than a deductible because it is the amount the patient will pay for a specific service or coverage, even if the deductible has not been met. A copay is paid each time this coverage is used, unlike a deductible which is only met once a year. There is no typical or average copay, which can vary from policy-to-policy, but it is a fixed dollar amount.
For example, you could have a copay of $30 for each doctor’s visit or $50 for a counseling appointment. Again, these amounts can vary, so it is essential to read your policy thoroughly.
Coinsurance is similar to a copay in that it is the portion the patient will pay for a service, but your deductible has to be met first. And coinsurance is usually a percentage and not a fixed dollar amount.
For example, if you have met your deductible and then have a 20% coinsurance on your services, you will pay the 20%, and the insurance carrier will pay the other 80%.
Your policy may have an out-of-pocket maximum. So, if you meet that out-of-pocket maximum between your deductible, copays, and coinsurance, your benefits will then be covered at 100% cost.
What Are The Advantages Of Cost Sharing?
One of the best advantages of cost-sharing is that the more you help pay for your medical costs, the less you will pay in insurance premiums. So, if you are relatively healthy, taking a policy with a higher deductible, copay, or coinsurance may be beneficial to help cut down on your monthly premiums.
Then, the opposite is true. If you frequent the doctor or other medical provider, paying more premiums and less cost-sharing may benefit you. It depends on your individual circumstances on how much cost-sharing you should take on.
What Are The Disadvantages Of Cost Sharing?
There can be some financial challenges that can come with cost-sharing for policyholders. Even those with lower deductibles, copays, and coinsurance can be burdened by medical costs in situations like terminal illness and sudden accidents.
The cost of medical services continues to rise, and cost-sharing can wreak havoc on families, not in a financial position to pay more than health insurance premiums. If you are in that boat, make sure you read your policy carefully and try to plan for these emergencies.
Is There A Maximum Amount Of Cost Sharing I’m Required To Pay?
The Affordable Care Act requires that most plans have an out-of-pocket maximum cost for policyholders that they pay, which is $8,700 in 2022. That means that regardless of the cover part you activate, your out-of-pocket cost for the year will be $8,700, and the insurance company has to pay the rest. It is crucial to note that this is only for the one-year policy period, and it resets when it renews.
Medicare does not have an out-of-pocket maximum. However, many Medicare recipients have supplemental plans that may. In 2022, the out-of-pocket maximum for Medicare Advantage plans can be up to $7,550. Be sure to check your plan for the actual amount.
Where Can I Learn What Cost Sharing My Plan Requires?
Some or all of these details may be provided on your health insurance ID card. Copays, deductibles, and coinsurance percentages are often listed on ID cards. Still, since it is a percentage, the amount of the coinsurance you will pay will vary depending on the claim amount.
Your health insurance plan publishes a document that explains the policy terms and conditions, known as a certificate or SPD. You can find cost-sharing info on your certificate of insurance, certificate of coverage, or summary plan description (SPD). Your individual and family deductibles should be listed along with copays and coinsurance on your certificate.