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Premiums, Deductibles, Out-of-Pocket Costs, Oh My!

Pick­ing the insur­ance plan that is right for you.

Select­ing the right health insur­ance plan is an impor­tant deci­sion and at times can feel like a daunt­ing task. Cov­er­age is con­tin­u­al­ly chang­ing and there are more con­fus­ing health insur­ance terms out there than ever before. DMG enables you to crack the health insur­ance code and pro­vide sim­ple steps to allow you to pick a plan based on the total costs of care.

What is the total cost” of health insurance?

  • Month­ly Pre­mi­um is what you pay to the insur­ance com­pa­ny for cov­er­age (regard­less of whether or not you received med­ical care that month)
  • Annu­al deductible (varies by plan) is the amount you are respon­si­ble for pay­ing for med­ical expens­es before the insur­ance com­pa­ny pays for any­thing (except pre­ven­tive ser­vices like a pap smear or rou­tine phys­i­cal, which you are enti­tled to each year free of charge). Some plans may also have sep­a­rate deductibles for things like pre­scrip­tion drugs. Fam­i­ly plans usu­al­ly spec­i­fy both an indi­vid­ual deductible, that applies to each cov­ered fam­i­ly mem­ber as well as a fam­i­ly deductible, which applies to all fam­i­ly members.
  • Copay­ments or coin­sur­ance (varies by plan) are pay­ments you are respon­si­ble for each time you receive med­ical ser­vices, even after you have met the annu­al deductible. Copay­ments and coin­sur­ance for in-net­work providers are often low­er than out-of-net­work providers. Many insur­ance plans spec­i­fy which net­work and providers are pre­ferred and are con­sid­ered in-net­work and all oth­er providers are out of net­work. If you are unsure, your insur­ance car­ri­er can help you deter­mine what providers and net­works are pre­ferred either through lists on their web­site or by call­ing the cus­tomer ser­vice num­ber list­ed on the back of the insur­ance card.
  • Out-of-Pock­et Max­i­mum (varies by plan) is the most you will spend to receive cov­ered ser­vices in a year. Once this amount is reached, the insur­ance com­pa­ny will pay the full amount for any addi­tion­al, cov­ered ser­vices pro­vid­ed by an in-net­work provider. (The out-of-pock­et max­i­mum does not include your pre­mi­um or any mon­ey you spend on ser­vices not cov­ered by your plan).

What are the most com­mon types of health insur­ance plans?

HMO (Health Main­te­nance Organization)

This type of plan usu­al­ly lim­its cov­er­age to providers that are con­tract­ed with the HMO or are with­in the plan’s net­work. The plan usu­al­ly does not cov­er out-of-net­work care except in the event of an emer­gency. These plans also require a refer­ral from your pri­ma­ry care physi­cian before see­ing a specialist.

PPO (Pre­ferred Provider Organization)

This type of plan may also encour­age use of in net­work providers and may have a small­er deductible, copay or coin­sur­ance if providers in the plan’s net­work are uti­lized. Doc­tors, hos­pi­tals, and providers out­side of the net­work can be seen with­out a refer­ral for an addi­tion­al cost. This type of plan typ­i­cal­ly has the high­est month­ly pre­mi­um but often has a low­er annu­al deductible, low­er copay­ments and the most flex­i­bil­i­ty in choos­ing providers.

HDHP (High Deductible Health Plan)

This plan usu­al­ly has the low­est month­ly pre­mi­um, but the trade­off is a high­er deductible than a tra­di­tion­al HMO or PPO plan. With a high­er deductible you pay more out-of- pock­et ini­tial­ly before the insur­ance com­pa­ny will begin to cov­er costs. A high deductible health plan is clas­si­fied as a plan with a deductible of at least $1,300 for an indi­vid­ual or $2,600 for a fam­i­ly. An HDH­P’s total year­ly out-of-pock­et expens­es (includ­ing deductibles, copay­ments, and coin­sur­ance) can’t be more than $6,550 for an indi­vid­ual or $13,100 for a fam­i­ly. (This lim­it does­n’t apply to out-of-net­work services.)

Pick­ing Your Plan

Start by think­ing about what med­ical ser­vices you will like­ly use in the upcom­ing year. You can try to esti­mate based on pre­vi­ous health needs or pat­terns. For exam­ple, if have a chron­ic con­di­tion that requires you to vis­it a spe­cial­ist every three months, you can safe­ly esti­mate four spe­cial­ty care vis­its. You may also want to fac­tor in 1 – 2 sick vis­its per year if you are prone to colds or oth­er sea­son­al ill­ness. While it is next to impos­si­ble to be able to pre­dict exact­ly what health care you will need, esti­mat­ing your needs is help­ful to deter­mine what each plan’s actu­al cost may be.

In gen­er­al, plans with high­er pre­mi­ums pay more up-front costs. Plans with low­er pre­mi­ums (most often a HDHP) will ini­tial­ly cov­er less of your health care costs. If you don’t antic­i­pate reg­u­lar trips to the doc­tor and are not on rou­tine med­ica­tions, a low­er pre­mi­um plan may work for you. These plans will save you mon­ey each month with a low­er pre­mi­um, as long as you are pre­pared to have a high­er annu­al deductible, which you will have to meet before insur­ance starts to cov­er costs when you do need care.

If you tend to be a fre­quent vis­i­tor at your physi­cian’s office or need reg­u­lar pre­scrip­tions, you may want to opt for the high­er pre­mi­um plans (PPO or HMO plans). These plans cost more per month but will cov­er more of your health care expens­es when you receive care.

Cov­er­age Examples

Here are some com­mon, real-life exam­ples to help show how these addi­tion­al costs can affect your over­all health­care cost.

Patient A Cov­er­age Details

Deductible: $2,000

Coin­sur­ance: 20%

Out-of-pock­et max­i­mum: $6,000

  • Exam­ple 1: After com­ing down with a flu virus, Patient A sees a pri­ma­ry care provider and the vis­it costs $100. One of two things will happen:
    • If they have met their deductible they will be respon­si­ble for 20% of the $100 vis­it ($20) and the insur­ance will pay for the remain­ing $80.
    • If they haven’t met their deductible, they will be respon­si­ble for the full amount of $100 until the deductible has been met.
  • Exam­ple 2: Patient A is hos­pi­tal­ized after a car acci­dent and between admis­sion, test­ing and physi­cian charges, have a $10,000 claim. Here is what would hap­pen in this sce­nario (assum­ing they have not been to the doc­tor yet dur­ing the year):
    • First they would pay all of the first $2,000 to meet their deductible.
    • Next, they would be respon­si­ble for 20% of the remain­ing $8,000 ($1,600) which is the coin­sur­ance amount.

In this exam­ple, the total out-of-pock­et costs would be $3,600. Had the charges exceed­ed the total out-of-pock­et max­i­mum, Patient A would only be charged up to that max­i­mum amount and their insur­ance would pay the remain­ing charges for all cov­ered ser­vices for the rest of your plan year.

In order to min­i­mize the impact med­ical expens­es have on your house­hold, you can also put mon­ey aside in pre-tax med­ical expense sav­ings accounts. These accounts may only be used to pay for approved med­ical expens­es. There are two types of accounts that work sim­i­lar­ly but do have some key differences.

Pre-Taxed Med­ical Sav­ings Accounts

Flex­i­ble Spend­ing Account (FSA)

A FSA account is a health expens­es sav­ings account set up through your employ­er to use towards out- of pock­et med­ical expens­es. A pre-set amount is deduct­ed from each pay­check and saved in the account. Eli­gi­ble health care expens­es often include a co-pay, deductible pay­ments and cer­tain pre­scrip­tions and med­ical equipment.

Mon­ey in an FSA account can­not be rolled over to be used the next year, so it is impor­tant to only save what you think you will actu­al­ly need and use each year to avoid los­ing any un-used funds. Your employ­er will also set a lim­it on the amount each indi­vid­ual can put into an FSA each year.

Health Sav­ings Account — HSA

This type of sav­ings account also allows you save mon­ey to use towards approved med­ical expens­es. Unlike an FSA account, an HSA can only be used in con­junc­tion with a HDHP (all oth­er plans can uti­lize a FSA account). HSA accounts are used by HDHP par­tic­i­pants pay to for med­ical expens­es while work­ing towards the annu­al deductible to help cov­er med­ical costs as they occur, rang­ing from office vis­its, pre­scrip­tions, lab work and oth­er types of diag­nos­tic test­ing. Using these pre-taxed funds helps to reduce the over­all cost of the plan for the patient. Unlike FSA accounts, unused HSA funds can be rolled over year over year and can even earn interest. 

Under­stand­ing the dif­fer­ent plans avail­able is an impor­tant step towards man­ag­ing the impact health care has on your wal­let. Select­ing a plan that best fits your needs by esti­mat­ing the total antic­i­pat­ed cost of care and uti­liz­ing med­ical sav­ings accounts to help pay for out-of- pock­et med­ical expens­es can help reduce the like­li­hood of being caught off guard by a large claim.

As always, it is impor­tant to remem­ber, the plan you chose does NOT impact the qual­i­ty of care you will receive at DMG. If you have addi­tion­al ques­tions spe­cif­ic to your pol­i­cy, please con­tact your insur­ance carrier.

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