Understanding Health Insurance Costs

A copay or copayment is a flat fee the consumer is responsible to pay at the point-of-service location such as the provider’s office or a prescription drug store. Typically, services that cost relatively lower such as a physician or specialist visit, urgent care, outpatient rehab therapies, etc. involve copay.

Are there services or circumstances that do not require copay?

• The consumer does not have to pay a copay fee for certain preventive care services (e.g. annual checkups, child immunizations, mammograms, women’s health, etc.). Or if the consumer has already reached the Maximum Out-of-pocket limit, then there is no copay for any services. The copays are counted towards the maximum out-of-pocket limit.
• Most services requiring the payment of copay waive the deductible. However, there may be services where the member is required to copay after the deductible is met. For example, outpatient short-term rehabilitation therapies involving speech, physical, occupational, etc. may involve a copay payment after the deductible. Until the deductible is entirely met, there is no copay.
• A copay service in a High Deductible Health Plan that is eligible for HSA may require that the aggregate deductible is met before copays come into the picture.

What are copay amounts in a typical plan?

• A plan with a $10 or $15 copay can be considered as a rich plan.
• Copays for a specialist visit can be $15 at the lower end, and they can go as high as $70.
• Sometimes the copay for certain services such as urgent care may be $20 or $50 per visit and emergency care may be $100 or $200 per visit.
• Sometimes the copay may be exempted for the first few physician visits.
• Plan designs use copay as a disincentive to using certain services such as non-emergency care in an emergency room. Sometimes they are used to promote certain uses. For e.g., $0 copay if you use a free-standing testing lab vs. $500 copay if you use the testing lab attached to the hospital

How is it paid or billed?

• Copays are collected at the point-of-service location and so they are not billed. However, if the payment was missed for some reason, the provider may send a bill.
• If the consumer has an FSA or HSA debit card, copays can be paid using the card at the service location.

A deductible is a first-dollar expense incurred by the member when consuming those services that are subject to deductibles. These would be typically high-cost services such as inpatient hospitalization, outpatient surgery, complex imaging services such as MRI, PET, CT scans.

A deductible is defined for a single individual and for the family as a whole. Each covered member’s deductible usage is tracked separately and the family deductible if applicable is used as an overall cap to the requirement of meeting deductible.

For example, in a family of 4, in a plan that has $1000 / $2000 as individual and family deductible, each covered member’s use of deductible services is subject to the $1000 cap, while collectively they are subject to $2000 cap. This is how normally an embedded deductible works in most plans.

HSA eligible plans mostly employ aggregate deductibles where the deductible usage is measured for the family as a whole when the covered members are more than a single individual. When there are two or more individuals covered in a family plan, the individual deductible has no purpose if it is an aggregate deductible.

Copays do not count towards the deductibles in most cases. Most services use one or the other, although some services have both. The deductibles get counted into the annual max out-of-pocket limit that serves as a consumer protection cap both at an individual level and at the family level.

Are there services or circumstances that do not require deductible?

• Services that are copay based where deductible is waived.

What are deductibles in a typical plan?

• A $0 deductible or $500 deductible plan is generally a rich plan.
• Plans are increasingly adopting $1000 to $1500 deductibles.
• In the case of HSA eligible plans, a minimum of $1300 single and $2600 family deductible is required. Certain catastrophic plans use $5000 single deductible.

How is it paid or billed?

• The exact deductible amount generally may not be determined at the point-of-service location in the case of medical services. They are billed by the Provider’s office, after the claims are adjudicated by the health plan.
• Sometimes, certain health plans make it easy for the consumers to pay these amounts through their portal or a third party service.

Coinsurance is a portion of the medical cost the consumer is responsible to pay. Coinsurance comes into the picture typically for high-cost services after the deductible is met by the consumer.

Plans that have 0% coinsurance do not require the consumers pay anything after the deductible is met. If there is a coinsurance of 20%, then the members have to pay 20% of the amount remaining after meeting the deductible of the contracted fee for the service.

For instance, if a plan has a $2000 deductible and 20% coinsurance, in a scenario of a childbirth that may cost $20,000 contracted fee with a network provider, the consumer will be required to pay $2,000 as deductible + $3,600 as 20% of 18,000, amounting to a total of $5,600, provided the max out-of-pocket limit here is above $5,600.

Coinsurance amounts count in towards the annual maximum out-of-pocket limit as consumer protection.

What are coinsurances in a typical plan?

• Most plans have 100% coinsurance meaning, the consumer does not have to pay any coinsurance (0% coinsurance from a consumer perspective) after the deductible is met.
• Other values go 90%, 80%, 75%, 70% etc. When the coinsurance increases, typically the gap between deductible and maximum out-of-pocket limit also increases.
• A slight increase in co-insurance (from a consumer standpoint) can reduce the premium, as the healthcare cost is further shared by the member.

How is it paid or billed?

• Just as deductibles, the exact coinsurance amount is not determined at the point-of-service location. They are billed subsequently. Health Plans provide an Explanation of Benefits statement.

Fixed Cost includes the cost of administration and services, stop-loss premiums.

Administration and services may include claims administration, network fee, pharmacy benefits manager fee, disease and utilization management, preventive care programs, member outreach, and other programs etc.

Stop-loss premiums include a premium for claims exceeding the Individual Stop Loss (ISL) limit, and premium for aggregate claims exceeding the maximum liability (Aggregate Stop Loss). ISL may be alternately called Specific Excess Loss.

ISL Premium

The carrier or the TPA reinsures the payment of individual claimants that exceed a certain limit defined as ISL Deductible. This can be $50,000 or $85,000 or $20,000 for smaller employers). The higher the ISL limit amount, the lesser the stop-loss premium charged by the Stop-loss carrier who is a reinsurer.

The stop-loss carrier estimates this based on assessing specific large losses, assessing and predicting the likely usage of treatment plans (e.g. cancer treatment) that may be in progress.

In certain circumstances, a specific single claimant may be excluded from this stop-loss coverage and that may have to be covered from the claims funds. Such limitations or lasers are identified and defined ahead of time. The idea here is to treat such as outliers so that they do not impact the premium of the larger population.

ASL Premium

The carrier or the TPA reinsures the payment of aggregate claims that exceed the maximum liability funds, which is already 25% excess of expected claims. This excess factor called aggregate corridor can be sometimes only 10% in the case of smaller firms.

Maximum Claims Funds Cost is 25% excess of annualized expected claims cost to sufficiently fund all claims with the exception of claims exceeding the ISL limit. The annualized expected claims cost is determined based on the past aggregate claims incurred with certain trend factors and weightage factors.