Out-of-pocket costs may seem self-explanatory — really, the definition is in the name — but don’t skip out on learning exactly how they work. If you don’t understand where your financial responsibilities start and stop, you can’t effectively budget for health care.
Here’s how out-of-pocket costs work.
Identifying the Costs
There are three major types of out-of-pocket medical expenses: the deductible, coinsurance and copays.
Your deductible is the money you yourself will have to pay before your insurance kicks in. Depending on the plan you have, this could be anywhere from less than a few hundred to several thousand dollars. You will have to pay for all medical expenses in full up until you reach this deductible amount.
Once you’ve met your deductible, your health insurance carrier will begin to cover some of the costs of medical care. The money you’re responsible for paying, or your coinsurance, is usually listed as a percentage of the overall cost, the rest of which your carrier will cover. So, a plan with an 80/20 split will cover 80 percent of the costs, leaving you to pay for 20 percent yourself. Some plans may include out-of-network coverage, but usually at a higher coinsurance rate than their in-network options.
Copayments — copays — are a fixed amount that you pay for each covered health service you receive. For example, if you have an appointment with a primary care physician, you will likely pay a relatively small fee when you arrive at the doctor’s office. They generally don’t count towards the deductible, but this varies from plan to plan. Primary care physicians, specialists, emergency rooms and different tiers of prescription drugs each have their own copays that you are responsible for, while the carrier pays for the rest.
Choosing the Right Plan for Out-of-Pocket Medical Expenses
The most important thing to consider when choosing a health insurance plan is your level of need. If you only expect to see your primary care doctor for an annual visit and you have few other medical expenses, then a higher-deductible plan with lower monthly premiums might be best for you.
On the other hand, if your medical needs are more complex and you’ll need frequent coverage for expensive prescriptions and specialist visits, then think about choosing a lower-deductible plan — you’ll pay more per month in premiums, but you’ll save money when the time comes for you to get pricey medication or an operation.
If out-of-pocket spending is still a concern with standard insurance offerings, look into subsidizing your health coverage with a supplemental plan. Bridging gaps in your coverage, supplemental plans like critical illness and accident or fixed indemnity insurance can help with out-of-pocket medical expenses that might be costly when relying on standard insurance alone — for example costs stemming from certain diseases, major injuries and hospital stays.
Some health insurance plans are also compatible with a health savings account (HSA), which allows you to set aside pretax dollars for medical expenses. Since the plans compatible with HSAs have higher deductibles than other plans, an HSA helps offset these costs while letting you pay less for your monthly premiums.
Knowing What to Expect
When browsing your options, it’s important to look at the evidence of coverage associated with each plan to see what every potential out-of-pocket medical expense will look like.
Use your carrier’s provider search tool to ensure that your doctor is in your network or covered by the plan.
No one likes to shell out for out-of-pocket medical expenses, but knowing how they work and what to expect ahead of time will help you plan your budget so that you can keep your focus where it should be — on your health.