Understanding How Health Insurance Works

Let’s say that you are in a serious accident. You’ve accumulated $50,000 in covered medical expenses.

A sample health insurance plan might offer:

  • Deductible: $5,000
  • Coinsurance: 20 percent
  • Out-of-pocket maximum: $6,000
    • In the example above, you would be responsible for the first $5,000 (your deductible).
    • After you pay your deductible of $5,000, you would be responsible for 20 percent coinsurance until you reach your out-of-pocket maximum of $6,000 (in this case, you would be responsible for another $1,000).
    • Your health insurance plan would pay the rest of the covered medical expenses (in this case, 80 percent).
    • After you reach your out-of-pocket maximum, you would pay nothing for any additional covered medical expenses for the rest of the plan year.

Deductible: The amount you are responsible for paying for covered medical expenses before your health insurance plan begins to pay for covered medical expenses each year.

Coinsurance: Shared costs between you and the health insurance plan. For example, you pay 20 percent of costs and your plan pays 80 percent. These percentages may be different from plan to plan. Some plans may not have coinsurance.

Copayment: The payment you make, usually a fixed dollar amount such as $15, each time you visit the doctor or fill a prescription medication. Not all plans have copayments.  These typically do not accumulate toward the deductible.

Out-of-pocket maximum: The most you will have to pay for covered medical expenses in a plan year through deductible and coinsurance before your insurance plan begins to pay 100 percent of covered medical expenses.

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