If you’re new to health insurance, it can be confusing to understand how much you pay for medical care, when you have to pay, and how much your health plan will charge.
Both health insurance deductibles and copays are types of cost-sharing, and refer to the way the health insurance company shares the cost of your health care with you. So, what’s the difference between a deductible and a copay? They differ in when you have to pay, how much you have to pay, and the balance your health plan has to pay. This article will explain how deductibles and copays work, and what you need to know to use your health insurance.
Cost-sharing for U.S. health insurance
The deductible is the fixed amount you pay each year (or each benefit period, if you enroll in Original Medicare and need hospital care) before your health insurance is fully effective. Once you pay your deductible, your health plan starts taking a cut of your health care bill. Here’s how it works.
Let’s say your plan has a $2,000 deductible and counts all non-preventive services into the deductible until met. You caught the flu in January and went to see your healthcare provider. After your health plan negotiates the discount, the doctor’s bill is $200. Since you haven’t paid your deductible this year, you’re responsible for the entire bill. After paying your medical professional bill of $200, you have $1,800 left to cover your annual deductible.
In March, you fell and broke your arm. The bill after your health plan negotiated discount is $3,000. You’ll pay $1,800 before reaching the $2,000 annual deductible. Now your health insurance kicks in and helps you pay the rest of your bills.
In April, your cast was removed. The bill is $500. Since you’ve already met your deductible for the year, you don’t have to pay any more for the deductible. Your health insurance pays the full share of this bill.
However, that doesn’t mean your health insurance will cover the full cost and you won’t have to pay anything. Even if you’ve paid your deductible for the year, you may still owe coinsurance until you reach the plan’s maximum out-of-pocket for the year (in most cases coinsurance applies to services that count toward the deductible under the following circumstances: ) you haven’t met this year).
Under the Affordable Care Act, by 2022, all non-grandmother or non-grandfather plans must cap in-network out-of-pocket costs for essential health benefits to no more than $8,700 for individuals and $17,400 for families. Most health plans limit enrollees’ out-of-pocket costs below, but not above, these limits. (Note that Original Medicare has no cap on out-of-pocket costs, which is why most enrollees have some form of supplemental coverage.)
Out-of-pocket limits apply to all in-network care deemed essential health benefits. It includes the amount enrollees pay for deductibles, co-pays, and coinsurance; once the combined cost reaches the plan’s out-of-pocket maximum, members will not have to pay any additional charges for the remainder of the year (for in-network, medically necessary care deemed essential health benefits), whether or not a copayment or coinsurance would otherwise be required.
However, this is assuming they continue to be insured under the same plan throughout the year. If you switch plans mid-year (due to a job change or qualifying life event), your out-of-pocket costs will reset to zero under the new plan.
What care is not covered by your deductible?
A copay is a fixed amount you pay each time you get a certain type of health care service, and the copay is usually a lot smaller than the deductible. But both deductibles and copays are fixed amounts, not coinsurance, which is a percentage of the claim.
In some plans, some services include a copay before you hit your deductible, while other plans include a copay only after you hit your deductible. Pre- and post-deduction copay rules generally vary based on the type of service you receive.
For example, a health plan might start with a $25 copay for your PCP visit (i.e. no deductible), but the same plan might have a $500 drug deductible that you must Pay for a drug with a copay before you start getting it (in other words, you have to pay the first $500 for the drug, and then you switch to a copay that varies by drug level).
If your health plan requires you to meet a deductible (medical or prescription) before copays start, you must pay the full cost of your health care until you meet the deductible – despite network negotiated rates, as long as you stay down the network.
But many health plans apply deductibles to some services from the start and copays to others. Copay services typically include primary care visits, specialist visits, urgent care visits, and prescription drugs. Depending on how your plan is designed, you may get coverage for some or all of these services through a copay, whether or not you meet your deductible. This means your insurance company will share the cost of your care at the beginning of the plan year.
But for other services, often including lab work, X-rays, surgery, inpatient care, etc., you may have to meet the deductible before your insurance plan begins to pay for some of your care (in most cases , then you must pay coinsurance until you reach the maximum out-of-pocket costs for the year).
Copayments you pay usually don’t count toward your deductible, but they do count toward your maximum out-of-pocket costs.
So, if you have a $2,000 deductible in addition to various copays to see or prescribe your primary care healthcare provider or specialist, then you must pay for the treatment beyond the copays. deductible.
Preventive Care: What’s Free and What’s Not
Both deductibles and copays are fixed amounts, which means they don’t change based on how much healthcare services cost. This is in stark contrast to another cost-sharing method, coinsurance, where you pay a percentage of the bill rather than a fixed amount.
When you sign up for health insurance, you know what your deductible is for the year; it doesn’t vary based on the type of services you get or the price of those services. If you have a $1,000 deductible, you will pay the $1,000 deductible whether your hospital bill is $2,000 or $200,000.
However, some plans have separate deductibles that apply to prescription drugs in addition to deductibles for other medical services. As mentioned above, the Medicare Part A deductible applies to the benefit period, not the calendar year. But it’s still a pre-determined, set amount, regardless of medical costs (Medicare adjusts the deductible every year).
When you sign up for health insurance, you also know what your health plan’s copay requirements are because they are also fixed amounts. When you see a specialist, if your health plan requires you to pay a $50 copay for seeing a specialist, you will owe $50 regardless of whether the specialist bills $100 or $300 (as long as the specialist in your health plan network and you comply with any preauthorization or referral requirements of your health plan).
Copayments and deductibles are also similar because some preventive health services provided under the Affordable Care Act are not subject to copayments or deductibles unless you have a grandfathering plan.
If you see a healthcare provider make a preventive medical visit that is on the list of preventive care that the insurance company must fully cover, you do not need to pay any deductibles for that visit, nor do you have to pay a co-payment for that visit visits, either.
Note that some services that may be provided during a preventive visit may not necessarily be fully covered because preventive care requirements only require full coverage of certain preventive care benefits. Before scheduling a preventive care visit, check with your insurance company to make sure you understand what is and isn’t covered.
The difference between a copay and a deductible is usually how much you have to pay and how often you have to pay. The deductible is usually much larger than the copay, but you only have to pay it annually (unless you have Medicare, in which case the deductible applies each benefit period, not after a calendar year). Once you hit your current year’s deductible, you don’t have to pay it again until the next year.
But the co-payment is still in progress. No matter how many copays you pay over the course of the year, you will continue to pay them every time you get health care services that require them. The only way you can stop paying a copay is if you’ve reached your health plan’s out-of-pocket maximum for the year. Reaching the out-of-pocket ceiling is unusual for most people, and only happens if your medical bills are very high for the year.
Deductibles and copays are both forms of health insurance cost-sharing. Deductibles tend to be larger and only need to be met once per plan year, whether due to one large claim or several smaller claims combined. Copays tend to be smaller and must be paid every time you see a doctor, visit an urgent care clinic, prescribe a prescription, or receive any other service under the plan for which a copay applies. Both deductibles and copays will count toward the health plan’s annual out-of-pocket maximum.
Most health plans have deductibles for some services and copays for others. But some plans only use copays, while others only have deductibles (add coinsurance after the deductible is reached, up to the maximum out-of-pocket cost). The more you know about how the plan works, the better you’ll be able to plan for medical expenses, big and small. Before you need medical care, it’s a good idea to read through your plan summary document so you know what to expect if and when you do need to seek treatment.
After you hit your deductible, you usually don’t have to pay another deductible until the next calendar year. On the other hand, you will continue to pay co-pays until you reach the maximum out-of-pocket cost.
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