When considering health insurance plans and their costs, there’s a lot to think about. You should know what you’ll need to pay and when, from your monthly premium to the copay at your doctor’s office.
Most plans are designed to split or temper the costs of care between you and your insurance provider. This is called cost-sharing. But why do you need to pay? And how does it work? Here are answers to all your cost-sharing questions.
What is cost-sharing?
Cost-sharing is the amount you need to pay out of pocket for medical services, items and equipment covered by your health insurance plan. Whether you purchased your plan from the health insurance marketplace, bought individual or family coverage directly from an insurance provider, or get your insurance through work, cost-sharing details are clearly defined by your plan before you enroll. This way, you can pick the plan that’s right for you based on your health needs and budget.
So, what kinds of cost-sharing do you have to look out for? Examples include:
- Deductibles: The amount you pay each calendar year before your plan starts to contribute to health care costs. With many plans, once you hit your deductible, you start paying copays or coinsurance for services.
- Coinsurance: The share of costs you pay after meeting your deductible. This is usually a percentage, not a fixed amount. For instance, your insurance may pay 80% of health care costs, and you’re responsible for 20%.
- Copayments: A flat fee you pay either before or after meeting your deductible when you receive specific health care services. Your copay is typically paid at the doctor’s office and may vary for different types of care – like $20 for a regular doctor visit or $40 to see a specialist.
- Out-of-pocket maximum: The maximum amount that you’ll pay for care during a calendar year. Once you hit your out-of-pocket maximum, your plan will pay for 100% of care costs for the remainder of the year.
Cost-sharing does not include your monthly premium payments or the costs of non-covered services.
The main purpose of cost-sharing
Cost-sharing has been a feature of health insurance plans for a long time. It keeps health insurance affordable for both you and your insurance company. Health care costs, such as deductibles, copays and coinsurance, help lower monthly premiums. Cost-sharing also ensures plan members use health services responsibly, helping insurance companies avoid unnecessary claims.
Not every type of service has a cost-sharing amount attached to it. Copays are often waived for things like preventive care, which encourages plan members to prioritize their health and decreases future costs for both the insured and their insurer.
An example of how cost-sharing works
So how do these cost-sharing elements work together? Let’s consider a hypothetical situation. Say that one morning, you walk outside to your car. The pavement is slick and you fall. Your arm really hurts, and when you go to the emergency room, you learn that you’ll need surgery at a cost of $5,000. Your health plan’s deductible is $3,000, and your coinsurance is 20%.
If you haven’t contributed anything to your $3,000 deductible throughout the year, you’ll be responsible for that amount out of pocket. After you pay that, you’ll also be responsible for 20% of every health service you receive for the rest of the year. Though if you hit your out-of-pocket maximum, your health plan will cover the rest in full.
Receiving care in network affects cost-sharing amounts
Regardless of the type of plan, most health insurance coverage is tied to a specific provider network. When you receive health services within this network, your insurance will cover your costs of care, and you’ll be responsible for your portion of cost-sharing. Receiving care in network ensures you pay the lowest amount possible for the care you receive.
Many plans don’t cover health care costs out of network, though some plans, like PPOs, offer limited coverage. In almost all cases, getting care in network will provide the highest level of coverage.
HMO and PPO plans: How cost-sharing is different
Health Maintenance Organizations (HMOs) and Preferred Provider organizations (PPOs) are two of the most common types of health insurance plan types. HMOs cover care provided in network but not out of network except for emergencies. PPOs cover care with a select network of doctors, clinicians and specialists, but may also cover care out of network.
Both types of plans have built-in cost-sharing features, but an HMO is a more limited network, and you typically pay the full amount for care you receive out of your network. Many PPO plans provide out-of-network coverage with accompanying deductibles and coinsurance, but in-network care is usually much more affordable.
What type of health insurance doesn’t have cost-sharing?
Plans that don’t include cost-sharing are uncommon and usually have high monthly premiums. The United States government, however, does offer a zero cost-sharing plan through the health insurance marketplace aimed at decreasing health care disparities among Native or Indigenous Americans. This plan is available to members of federally recognized tribes and to Alaskan Native Claims Settlement Act Corporation shareholders. To be eligible for a zero cost-sharing plan, you must have a household income between 100% to 300% of the federal poverty level.
How cost-sharing works with Medicare
With Medicare, deductibles, copays and coinsurance will vary based on your type of coverage, the services you receive and what kind of provider you visit. These cost-sharing amounts can change depending on how Original Medicare itself changes each year. And Medicare is somewhat unique in how many cost-sharing requirements you need to consider. Each part of Medicare has its own deductible, copay and/or coinsurance rate.
Medicare Part D prescription drug coverage: Preferred vs. standard pharmacies
For those on Medicare, to get coverage for medicine, you need to be enrolled in a standalone Part D prescription drug plan or a Medicare Advantage plan that includes Part D coverage. For many Part D plans, prescription drug coverage often requires you to get medicine from in-network pharmacies. However, some in-network pharmacies may be considered “preferred.” At a preferred pharmacy, you’ll pay lower cost-sharing amounts – for instance, your copay might be less.
You can still go to a pharmacy that’s in network even if it’s not considered preferred. But the cost-sharing will be higher than at a preferred pharmacy.
Why do some Part D plans have preferred cost pharmacies?
Preferred cost pharmacies charge less for prescription drugs per a negotiated agreement with your insurance company. The discounted costs help patients access medicine with more affordable copayments and coinsurance amounts.
Standard cost-sharing vs. paying for medicine out of network
Many Part D prescription drug plans include non-preferred pharmacies that are still in network. At these, you’ll pay your standard cost-sharing rate. With most plans, though, if you get your medicine at an out-of-network pharmacy, it won’t be covered, and the whole cost of the medicine is your responsibility.
Medicaid and cost-sharing
For those on Medicaid, you can expect cost-sharing amounts. However, your share of the cost can vary state to state and depend on what services you’ve received. Federal laws limit how much a state’s Medicaid program can charge for cost-sharing. Out-of-pocket costs for a family on Medicaid can’t be more than 5% of that family’s annual income.
Cost-sharing reductions for marketplace plans
For those on a health insurance marketplace plan, you might be eligible for a cost-sharing reduction (CSR). This discount lowers the amount you pay for deductibles, copayments and coinsurance, and your out-of-pocket maximum.
This program was created under the Affordable Care Act (ACA) to help those who qualify lower their out-of-pocket health care costs. You can only get a CSR if you’ve purchased your plan through a health insurance marketplace.
To be eligible for a CSR, you must be enrolled in a Silver plan, which is a specific designation for a marketplace plan that features moderate premiums and cost-sharing rates. You must also not have access to or be eligible for an employer-sponsored plan or government programs like Medicare, Medicaid or CHIP. And finally, you must have an income that falls between 100-250% of the federal poverty level.
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