Essential Facts About Home Insurance

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Co-Insurance Versus Co-Pay: Understanding the differences

When considering co-insurance and co-pay healthcare policies, understanding the difference could save you a lot on medical and dental expenses. So, what exactly do the terms mean? How do they affect your selection of a plan? 

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Co-insurance vs. Co-pay

Even though you will eventually have to pay a premium for both types of policies, there are a few differences you should know. Let us start by considering how co-insurance policies work.

Co-insurance Policies

Co-insurance is the part of medical expenses for which the insured is responsible for. It is the joint assumption of risk between the insurer and the insured. It is usually in the form of a percentage and only applies to covered services. Medical expenses incurred for services not covered under the plan will be the sole responsibility of the insured. You should also know that the deductible must be met before co-insurance kicks in. Below are three potential scenarios for the same hospital visit.
Here are three possibilities for a co-insurance plan with an 80/20 split (the plan pays 80% of the bill and you pay 20%) and a $3,000 deductible.

Co-Insurance Versus Co-Pay: Understanding the differences

Possibility 1 You incurred charges of $1,800. However, you haven’t paid a cent toward the deductible. In this case, you will be responsible for the entire balance of $1,800.

Possibility 2 You’ve already contributed $2,500 toward the deductible before your hospital visit. Therefore, you are required to finish meeting the deductible by paying $500. Then you must also pay 20% of the original bill, which comes to $360. In total, then, you will end up paying $860 for the visit.

Possibility 3 You’ve already met the $3,000 deductible earlier in the calendar year. This means, assuming all the included items are covered, that you will only pay 20% of the bill, which is $360. The health insurance provider will be responsible for the remaining 80% which is $1,440.

Co-pay Policies

Copay is a fixed amount for a covered service, paid by a patient to the insurance company before patient receives service from physician. In the United States, copayment is a payment defined in an insurance policy and paid by an insured person each time a medical service is accessed. It is technically a form of coinsurance, but is defined differently in health insurance where a coinsurance is a percentage payment after the deductible up to a certain limit. It must be paid before any policy benefit is payable by an insurance company. 
Co-payments are set amounts that the insured must pay to the medical or dental provider at the time services are rendered. (Quick note: some well care or preventative services are offered free of charge.) Co-pays typically start at $25 and go up from there, depending on the level of service received. They apply to select services, such as office visits, prescriptions, specialist visits, urgent care and emergency room visits. Similar to co-insurance, the deductible must be met before the co-pay kicks in. Again, here are three possibilities for dental insurance with a $50 co-pay and a $200 deductible.
Possibility 1 The dentist communicates that you need a filling that costs $150. As you haven’t yet paid any of your deductible, you’ll foot the entire bill.

Possibility 2 If you’ve already paid $175 of the deductible, you will only be responsible for $75 at the time of the visit. This amount covers the remaining $25 to meet the deductible and the $50 co-pay.

Possibility 3 – Once the deductible has been met, you will only have to remit the co-pay of $50.

Out-of-Pocket Limits

How about exorbitant medical bills under both types of policies? In most instances there is an out-of-pocket limit for the insured, a maximum amount above which the insurance provider must pay for everything else. It’s important to check your policy provisions to confirm that you have one and to find out how much it is.

Why It Is Good To Know the Difference

In some scenarios, medical and dental policies have both co-insurance and co-pay provisions. You have to meet the deductible for services to be covered. Once you have, you pay a co-pay at the time of treatment and receive a bill in the mail for the co-insurance portion that you owe, if any. 
To illustrate, if your insurance provider requires a co-pay of $50 and a co-insurance fee of 20%, a $1,000 service will cost you $250 if the deductible has been met.
If you have a co-insurance-only policy with a high deductible, this can mean hefty expenditures until the out-of-pocket maximum is met. However, your monthly premiums may be substantially lower.
Co-pay plans with low deductibles equal to minimal expenditures per visit, which seems better. However, the premiums are likely to be much higher. What's more, you could end up spending a ton if extensive treatment that requires multiple doctor visits each week is needed.

A Word of Caution About In-Network

Before seeking medical care, always confirm that the provider is in-network. Otherwise, your insurance company may reject the claim and pass the entire bill on to you or force you to pay significantly higher pre-negotiated rates.

The Bottom Line

The next time you’re shopping for a health or dental insurance policy, carefully review the co-insurance and co-pay provisions before enrolling. Otherwise, you could end up spending much more than expected for medical or dental care.

Also see:
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