Understanding More Than the Monthly Premium
The monthly premium is important, but it does not tell the entire story. Two health plans can have similar premiums while providing very different deductibles, copays, coinsurance and maximum financial exposure.
Understanding these terms can help employers and employees compare group health insurance plans more accurately.
Shopping for your own coverage instead of an employer plan? Compare individual health plans in Alabama.
Important: Health plans can apply these terms differently. Always review the official plan documents, summary of benefits and coverage, provider network and exclusions before making a decision.
What Is a Deductible?
A deductible is the amount a covered person may have to pay for certain covered healthcare services before the insurance company begins sharing those costs.
Simple example
A plan has a $2,000 deductible.
The covered person may be responsible for the first $2,000 of medical expenses that apply to the deductible. After the deductible is met, the plan may begin paying a larger portion of covered expenses.
Not every service necessarily requires the deductible to be met first. Some plans provide office visits, prescriptions or preventive services under separate rules.
Think of the deductible as the starting line for cost sharing.
What Is a Copay?
A copay is a fixed dollar amount someone pays for a specific covered service.
Examples
- $30 for a primary-care visit
- $60 for a specialist visit
- $15 for a generic prescription
- $250 for an emergency-room visit
Some plans offer copays before the deductible is met. Other plans require the deductible first. Copays can also vary by provider, facility, prescription tier or type of service.
A copay is usually a set dollar amount.
What Is Coinsurance?
Coinsurance is the percentage of a covered medical expense the insured person pays after satisfying the applicable deductible.
Simple example
A plan pays 80%, and the covered person pays 20%.
For a covered in-network bill with an allowed cost of $1,000:
- Insurance pays approximately $800.
- The covered person pays approximately $200.
This example assumes the deductible has already been met and the service is covered and in-network.
Coinsurance is a percentage, not a fixed dollar amount.
What Is an Out-of-Pocket Maximum?
The out-of-pocket maximum is generally the most a covered person must pay during the plan year for covered, in-network services that count toward the limit.
After the out-of-pocket maximum is reached, the insurance plan generally pays 100% of additional covered, in-network expenses for the remainder of that plan year.
Expenses that may count toward the limit
- Deductible payments
- Copays
- Coinsurance
- Other eligible covered cost sharing
Expenses that generally do not count
- Monthly insurance premiums
- Out-of-network charges, depending on the plan
- Non-covered services
- Charges above the plan's allowed amount
- Penalties or expenses excluded by the plan
The out-of-pocket maximum helps limit covered in-network financial exposure during the plan year.
How Deductibles, Copays, Coinsurance and the Out-of-Pocket Maximum Work Together
Example plan
- $2,000 individual deductible
- 20% coinsurance after the deductible
- $6,000 individual out-of-pocket maximum
- $30 primary-care copay
A covered person receives surgery with an allowed in-network cost of $12,000.
For this simplified example:
- The covered person pays the first $2,000 toward the deductible.
- There is $10,000 of the allowed expense remaining.
- At 20% coinsurance, the covered person pays another $2,000.
- The insurance company pays approximately $8,000 of the remaining allowed expense.
- The covered person's total responsibility for this simplified surgery example is approximately $4,000.
This is a simplified educational example. Actual claims depend on the plan documents, network status, allowed charges, accumulated expenses, family deductible structure, copays, exclusions and other plan provisions.
At a Glance
Deductible
What someone may pay before certain plan benefits begin sharing costs.
Copay
A fixed dollar amount for a particular service.
Coinsurance
A percentage of covered expenses paid after the deductible.
Out-of-Pocket Maximum
The general annual limit on eligible covered in-network cost sharing.
Questions Employers Should Ask When Comparing Plans
- Is the deductible individual, family or embedded?
- Do office visits require the deductible first?
- Are prescriptions subject to the deductible?
- What coinsurance applies after the deductible?
- What is the individual out-of-pocket maximum?
- What is the family out-of-pocket maximum?
- Are the preferred hospitals and doctors in-network?
- Are there separate deductibles for prescriptions or out-of-network care?
- What services require prior authorization?
- How do the employee payroll deductions compare?
The lowest premium is not always the lowest-cost plan. The right comparison should consider premiums, benefits, networks and potential employee exposure.
Why These Details Matter to Alabama Employers
A health plan affects more than the company's monthly expense. It can also affect employee satisfaction, recruiting, retention and whether employees can comfortably use the coverage being offered.
Alabama Health Solutions helps Alabama employers review the full picture, including:
- Employer contribution
- Employee payroll deductions
- Deductibles
- Copays
- Coinsurance
- Out-of-pocket maximums
- Prescription benefits
- Provider networks
- Dental, vision, disability and voluntary benefits
Let Us Help You Compare the Entire Plan
Choosing group health insurance should involve more than looking at one monthly number. Alabama Health Solutions helps Alabama employers compare cost, coverage, networks and employee exposure.
Or reach us directly at office@alabamahealthsolutions.com.
This page is educational and general in nature. It is not legal, tax or medical advice, and it does not guarantee coverage, savings or plan availability. Return to the Alabama Health Solutions homepage.