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What is health insurance cost sharing?

Compare out-of-pocket costs like copays and deductibles and find out how much you’ll really pay for healthcare.

Along with a monthly premium, health insurance has a host of complicated out-of-pocket costs you may be on the hook for if you need medical care. To make things more confusing, these fees vary between plans, and a lot of them depend on the doctors you see. Learning the key cost-sharing terms can help you to avoid unexpected medical bills.

What is a premium?

Your premium is the fee you pay each month to maintain your health insurance coverage — even if you haven’t needed care. The dollar amount comes down to the type of plan you have and whether you’re eligible for tax subsidies.

If you have health insurance through your work, your employer might subsidize all or part of your premium. The average annual premium for employer-sponsored policies in 2019 was $6,972, according to the Kaiser Family Foundation — and employers paid $5,483.

Most insurers give you a grace period of 15 to 30 days to make up a missed payment — otherwise, you’ll lose your coverage. For that reason, it’s important to choose a plan with monthly premiums that you can comfortably afford.

What is a deductible?

The deductible is the amount of money you have to pay before your health insurance kicks in to cover a larger portion of your bills. It resets yearly.

Let’s say your health insurance policy has a $1,000 deductible. This means you’ll cough up $1,000 out of pocket before your insurer steps in to help with the rest of your bill.

Many low-cost plans have high deductibles to compensate, so make sure you consider how much you can afford to spend up front before your plan kicks in.

What is a copay?

A copay is a set rate you’re charged for specific healthcare services, and it’s due at the time of care. For example, you might have a $10 copay for your monthly prescription, a $30 copay every time you see your primary care doctor and a $500 copay for an emergency room visit.

The copay is separate from your deductible — so you still need to pay it even if you’ve met your deductible.

What is coinsurance?

Once you’ve reached your deductible, coinsurance is the percentage of your medical bill you’ll pay — and your insurer pays the rest. For example, if your plan has a 30% coinsurance, you cover 30% of each bill and your insurer takes care of the remaining 70%.

Health insurers negotiate rates with their in-network providers, which means you pay the coinsurance on the discounted rate. Because of this, coinsurance isn’t due at the time of service — your insurer sends you a bill after they’ve crunched the numbers.

What is the out-of-pocket maximum?

Also known as the out-of-pocket limit, this is the highest dollar amount you’ll pay out of pocket in one year for your healthcare. Once you hit that number, your insurer covers 100% of your medical bills.

The out-of-pocket maximum varies by plan, and some set limits.

  • For Marketplace plans, you won’t pay more than $8,550 for an individual and $17,100 for a family in 2021, according to
  • For Medicare Part C, you’ll pay a maximum of $7,550 if you visit in-network providers and $11,300 if you go out of network.
  • For Medicare Part D, you won’t spend more than $6,550 on prescription drugs in a given year.

Typically, plans with high out-of-pocket maximums have lower premiums and deductibles.

Why your plan’s network matters

Every health insurance plan has a network. This is the group of doctors, clinics and hospitals that have partnered with your insurer. In other words, they accept your insurance.

Thanks to this partnership, you’ll access prenegotiated discounted rates from those providers, so your out-of-pocket costs will be lower.

To find out if a doctor or facility is in-network, call your insurer or check out their online directory. Most insurers have an online portal or app where you can search for in-network providers near you.

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How health insurance cost sharing works together

All health insurance plans have a premium, deductible and out-of-pocket maximum, and yours might have a copay and coinsurance, too.

Generally, here’s how cost sharing works if you stay in network.

As soon as you sign off on your health insurance plan, you’ll begin paying monthly premiums. The premium won’t change for the life of the plan, which is typically one year.

When you visit a doctor or go to a hospital, you may pay a copay for that service and it’s due up front. Over the course of the year, any medical care you get counts towards your annual deductible. Once you hit that number, your coinsurance kicks in. At this stage, your insurer starts paying a larger chunk of your medical bills — usually 60% to 90%.

You’ll keep paying copays or coinsurance fees until you reach your plan’s out-of-pocket maximum. Then, your insurer pays 100% of your medical bills until your policy expires.

If you go out of network, you’ll cover a significant portion of the costs yourself — maybe even the whole bill. And anything you pay won’t count towards your deductible or out-of-pocket maximum.

Premium vs deductible vs copay vs coinsurance

What it isWhen you payTypical amount
PremiumPayment to maintain your policyMonthly$1,500
DeductibleHow much you have to pay each year before you get some benefitsEach eligible medical bill goes towards your deductible$3,000
CopayCost of a doctor’s visitWhen you visit the doctor$20
CoinsuranceHow much you pay after meeting your deductibleEach time you visit the doctor after hitting your deductible20%

How to calculate your out-of-pocket costs

Your health insurance policy should have a summary of your out-of-pocket costs, and most insurers allow you to search for specific services online. If you’re having trouble reading your policy or want confirmation, call your insurer — the number’s on the back of your insurance card. They’ll connect you to the billing department, which can tell you how much you’ll pay based on your deductible.

Unfortunately, billing errors are common. To prevent payment disputes later, it’s a good idea to write down the name and contact number of the person you spoke to or ask them to send the cost over in writing.

Ask an expert: Why do cost structures vary so much between health insurance plans?

Adam Hyers

Adam Hyers
Owner and health insurance broker at Hyers and Associates

It really depends on the type of insurance. Short term plans can, by current regulations, have much different cost structures than ACA policies. They may cover less in certain circumstances and have certain limitations (i.e. no coverage for maternity), but consumers are willing to give up certain benefits to lock-in lower premiums.

Many large group employer policies also don’t have to follow the same rules as ACA governed plans. Therefore they offer different cost structures, benefits and more flexibility. ACA plans on the other hand are much more structured and therefore will not differ as much. You’ll find similar cost structures when comparing the same metal tier, like Silver plans for example.

How should people compare cost sharing between plans?
If you visit your doctors often, it’s a good idea to choose a policy with a low doctor’s office copay. The maximum out of pocket is an important feature as well. If you know you may have certain expensive procedures upcoming, it’s wise to pay more for a plan with less out-of-pocket exposure. Sometimes, HSA plans offer the lowest overall out-of-pocket and can therefore save you money overall.

Prescription costs are very important, too. Some plans won’t cover prescriptions right away, so you’ll want to research which policy helps with your prescriptions the most.

How common is it to have to pay coinsurance?
Most consumers only pay coinsurance once they’ve met the deductible, so overall it’s only somewhat common. If you own a policy with a very low deductible, then you’re more likely to reach the coinsurance phase of your plan. Or if you’re on an expensive, high-tier medication, you might experience coinsurance right away. Otherwise, you’re less likely to pay coinsurance unless you run into larger medical bills.

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Bottom line

Health insurance plans have various cost-sharing options, and you can expect to pay a portion of costs out of pocket. Some policies have low premiums and high deductibles and out-of-pocket maximums, and others have the opposite.

To avoid surprise medical bills, pay close attention to those costs when comparing health insurance plans.

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