By: Suzanne Berman, MD, FAAP & Angelo Peter Giardino, MD, PhD, FAAP
All health insurance requires consumers to pay some of the cost of covered health care services. This is called "cost sharing" or "out-of-pocket" costs. Cost sharing varies with different types of health plans, but most will have a copayment, coinsurance or deductible amount.
Types of Cost Sharing Arrangements & Situations
How much is paid by the insurance company, and how much is your responsibility, depends on your plan's cost sharing arrangement:
Copay: In a traditional copay plan, you pay a fixed amount per service. For example, if your copay is $40, you are expected to pay $40 and your insurance will pay the remaining $45 ($40 + $45 = $85). You may have a copayment for emergency room services; check your plan for details emergency services for non-emergency problems.
Coinsurance: In a coinsurance model, you pay a fixed percentage of each service. For example, if your coinsurance is 20%, you would pay 20% of the $85 allowable (0.2 x $85 = $17) to the doctor, and the insurance company would pay the remaining $68 ($85-$17 = $68).
Deductible: With a deductible, you pay the entire amount allowed for all services provided until the deductible is met. If your insurance has a $1,000 annual deductible, you would pay the entire $85 allowable to the doctor. In fact, you would pay the entire amount for 11 such visits ($1000/$85 = 11.8) before your insurance began to pay anything to the doctor directly. The deductible starts over every plan year. So, if you see the doctor for this type of office visit 15 times, but at least 11 of those 15 visits are not within the same plan year, your insurance will not pay anything against his or her fees.
Out-of-pocket maximum: This is the absolute maximum you are expected to pay in cost sharing within a plan year. In contrast to your deductible, the out-of-pocket maximum refers to your cost sharing arrangement after your deductible has been met. An insurance plan with a $1,000 deductible might have a $1,500 out-of-pocket maximum, coupled with 20% coinsurance. In that case, you would pay the entire $85 for 11 visits to the doctor under your deductible. Having met your deductible, you would then pay $17 per office visit (20% coinsurance) until you spent $500 in coinsurance ($1,500 - $1,000), or about 29 more office visits ($500/$17 = 29.4). At that point (40 total visits in a year), you would pay nothing more for medical care for the remainder of the plan year.
Here's an example of the different ways insurance cost sharing can work:
Dr. Martinez' typical charge for a certain kind of office visit is $100. As a courtesy to you, she files a claim with your insurance plan for the visit. The insurance plan permits $85 of the $100 charge (the "allowable"). Because Dr. Martinez is in network with the plan, she has already agreed by contract to accept a $15 reduction in her fee (the adjustment) for this service. Dr. Martinez must write off the $15 and not bill you for this amount. Dr. Martinez will be paid a total of $85 for that office visit.
To add to the complexity, different cost-sharing arrangements may apply depending on different situations:
Variable copays or coinsurance. A plan might have a $25 copay for every doctor visit, 20% coinsurance for every prescription, but a $10 copay for every visit to a speech therapist. Similarly, a visit to your pediatrician might incur a $30 copay, but a visit to a pediatric allergist might incur a $50 copay.
In-network or out-of-network status. To encourage your use of in-network providers, a plan might have a 20% coinsurance for an in-network provider but a 50% coinsurance for an out-of-network provider. Continuing the above example, where a doctor's allowed fee is $85, you would be responsible for $42.50 of his or her fee if he or she is out-of-network with your plan, but only $17.50 if he or she is in-network. More commonly, out-of-network doctors may not even accept the $85 allowable and expect the full $100 of the charge to be paid. See FAQs: Preferred & Out-of-Network Providers for more information.
Individual vs. family deductibles and out-of-pocket limits. This is important if more than one family member is covered on the same plan. For example, your plan may have a $2,000 deductible. If you spend $700 on allowed services for each of your three children on the plan, you will have met a family deductible, having paid $2,100. However, if your plan also has individual deductibles of $1,000, you would still be short $300 ($1000 - $700) of each child's individual deductible.
What counts against the deductible? Deductibles only apply to money you spend on covered services that are billed to the insurance plan. For example, you might reasonably spend $100 or more a year on over-the-counter products like fever reducers and allergy medications. However, since you paid cash at the pharmacy and a claim was not sent to your insurance plan, the insurance plan has no way of tracking what you spent. The $100 does not get credited against your deductible. Similarly, you might spend $250 on eyeglasses at the optometrist's office. The optometrist might bill your insurance, but if your insurance determines that vision services are not covered, you are still responsible for the entire $250, and you do not receive credit for the $250 against your deductible. However, you might be able to use a health savings account (HSA) in these cases.
Children's Preventive Services
Children's preventive services, such as well-child checkups and immunizations, may or may not be covered without cost sharing. You should carefully review your plan's benefit description for details. The best time to review a plan is before you sign up with it.
Methods of Payment
Before visiting your child's doctor, check the accepted methods of payment for your out-of-pocket expenses. Options for payment may include cash, check, or credit card. Remember to bring your insurance card with you to each visit.
High-Deductible Health Plans (AAP Policy Statement)
About Dr. Berman:
Suzanne Berman, MD, FAAP, is co-founder and managing partner of Plateau Pediatrics, the first NCQA-certified level 3 patient centered medical home in Tennessee. She serves the American Academy of Pediatrics (AAP) in a variety of roles―including the executive committee of the Section on Administration and Practice Management and the Committee on Child Health Financing. Dr. Berman frequently contributes to AAP projects and publications regarding medical home practice transformation, rural health, coding, data mining, and policymaking. She and her husband have three sons.
About Dr. Giardino:
Angelo P. Giardino, MD, PhD, MPH, is the Wilma T. Gibson Presidential Professor and Chair of the Department of Pediatrics at the University of Utah's School of Medicine and Chief Medical Officer at Intermountain Primary Children's Hospital in Salt Lake City, Utah. He holds subspecialty certifications in Pediatrics and Child Abuse Pediatrics from the American Board of Pediatrics. He is also a Certified Physician Executive (CPE) within the American Association for Physician Leadership. He completed the Patient Safety Certificate Program from the Quality Colloquium, is certified in medical quality (CMQ) as designated by the American Board of Medical Quality and is a Distinguished Fellow of the American College of Medical Quality. Within the American Academy of Pediatrics, Dr. Giardino is a member of the Committee on Child Health Financing, the Council on Child Abuse and Neglect, and the Council on Children with Disabilities.