We will look at two situations. The first will be a doctor office visit. The second will be a visit to the hospital.

There are four features of health insurance to understand:

• Copayment—This is the amount you pay each time you receive a “covered service,” such as a doctor office visit, or a prescription drug.
• Deductible—The annual amount you must pay before the insurance company starts paying.
• Coinsurance—The percentage of your medical expense that is shared between the insurance company and you after the annual deductible is satisfied. This is expressed as a percentage, i.e., 80/20. The insurance company pays 80% and you pay 20% (until you meet your “out of pocket maximum” (OOP)).
• Out of Pocket Maximum—The maximum amount of coinsurance you pay (after the annual deductible is satisfied) before the insurance company begins paying 100% of allowable expenses.

Let us assume your health plan has the following features:

• Office Visit copayment of $30.
• Annual Deductible of $2,000.
• Coinsurnce 80% with an OOP maximum of $3,000.
• Prescription drug copayment of $10/$30/$50 (generic/brand/non-preferred brand).

A visit to the doctor’s office.

Your plan has an office visit copayment.

You pay the $30 copayment, and the insurance company pays the balance.

Your plan does not have an office visit copayment.

The doctor normally bills $200 for an office visit, but because office visits are a “covered service” under your plan, the insurance company allows only $100 to be billed. The insurance company has negotiated rates with the doctor that result in a 50% discount from the $200. You pay the negotiated discounted rate of $100. If office visits were not a “covered service” under you plan, you would be responsible the entire $200.

While in the doctor’s office, the doctor orders some blood tests and X-rays. You go down the hall to ABC Labs to have the blood drawn and X-rays taken. ABC Labs sends you a bill. That bill would be subject to your annual deductible and coinsurance. You would enjoy the benefit of the negotiated discounts (typically 50%) for these “covered services.”

You go to the pharmacy to fill a prescription for a generic drug that cost $65. You pay $10. If you had a brand name drug that cost $100, you would pay $30. If the brand were a “non-preferred” brand that cost $165, you would pay $50

A visit to the hospital.

As a result of an accident, you spend five days in the hospital. The bill after negotiated rates are applied is $100,000. Here is how the bill is paid:

• You are responsible for your annual deductible of $2,000. That leaves a balance of $98,000.
• Coinsurance now begins to apply to the $98,000 balance. You share the cost with the insurance company on a 80/20 basis. 20% of $98,000 is $19,600. But wait! You have an “Out of Pocket” (OOP) maximum of $3,000. So, after you pay only $3,000 of coinsurance, you stop paying. The insurance company pays 100% of the balance of allowable charges.

For a $100,000 hopsital visit, you paid:
$2,000 annual deductible
$3,000 coinsurance (Out of Pocket Maximum)
$5,000 Total

Insurance company paid $95,000 ($100,000 minus your $5,000).

Is a Low Deductible always better than a High Deductible?

Be Sociable, Share!

•