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Health Insurance 101: Deductibles, Coinsurance & Maximum out of Pockets

Health Insurance 101 is a series in the Lerner, Csernai & Fath Benefits Blog that goes over concepts of insurance to make them easier for you to understand. As always the best source of information is a trained agent.

 Deductibles. Coinsurance. Maximum-Out-Of-Pockets (MooP). Insurance in the public eye has revolved around terms like these for quite some time now, and is sure to as we continue moving forward . When it comes to health insurance there are not numbers that are more important than your deductible and MooP, other than of course your monthly premium to keep coverage active. In my time in the industry there are many individuals who I come across who do not fully understand how these numbers work, how they are structured and how this all stacks up into their maximum health liability. We are going to explore both the Deductible and MooP for you and explain the workings so you can come to your meeting with us familiar with how these work and what you are up against. I find it easy to relate health insurance, when you can, to another popular insurance product: Car Insurance.

Deductible is defined by as follows: "A deductible is the amount of money an individual pays for expenses before his insurance plan starts to pay." A deductible is a way for insurance companies to give incentive towards proper usage of coverage. If we relate this to car insurance this deductible functions on Layman's Terms in the same sense as your auto insurance deductible. In both cases you pay the deductible BEFORE the Insurance Company begins to pay. The main difference comes in how deductibles are accrued over the policy term. For auto insurance you pay the deductible every time there is a loss that you want to claim, there is no limit to your deductible expenditures. Health insurance gives you a deductible that spans the entire year, you have one deductible that all of your expenditures (other than premium) stack up against - we will call this deductible 'Box A.' Once you fill up Box A with the pre-determined dollar amount, then you have met your deductible and the insurance company begins to pay out on claims. You may not meet this deductible all at once like you do with an auto insurance claim, it may take you a couple of trips to the doctor before you meet your deductible - remember, though! You only have one deductible all year. You could meet this deductible in January and the insurance company could start paying on claims for the remainder of the year!

 Coinsurance is a term that is used seldom away from the Health Insurance world. You may run into it with other insurance products, but you are GOING to run into it with health insurance. Coinsurance has the reputation of being confusing but it is actually a very simple concept when explained correctly. Coinsurance is defined by as follows: "Co-insurance is a co-sharing agreement between the insured and the insurer under an insurance policy which provides that the insured will pay a set percentage of the covered costs after the deductible has been paid." So what does that mean? This means that once you fill up Box A, the insurance company has agreed to Co-Insure you. Meaning that at that point they are not fully insuring you (paying 100% of the costs) rather they are SHARING the costs with you. Coinsurance structures are commonly structured on one of the following agreements: 60% Company/40% Insured, 70% Company/30% Insured, 80% Company/20% Insured, 90% Company/10% Insured. Those ratios mean exactly what they seem: For every dollar of medical expense incurred the company pays their percentage and you/the insured pay your percentage. Coinsurance is always a percentage.

 Coinsurance is often mistaken with a Copay . defines a Copay as follows: "A co-pay is a common feature of many health insurance plans, where the insured pays a set out-of-pocket amount for health care services." A Copay has the exact same underlying nuts & bolts as coinsurance, but rather being expressed as a percentage it is expressed as a dollar amount. The most common usage of a Copay in insurance today is with what is called a First-Dollar Copay. We will explore First-Dollar Copays in greater detail with a different Benefits Blog Post, but they are essentially a flat fee that you pay to utilize service before you meet your deductible. Copay's are also utilized after your deductible is met on things such as prescriptions and office visits. By having a Copay the service is made accessible for the Insured at a reasonable price point.

 Like your Deductible expenditures contributed to Box A, your Coinsurance and Copay expenditures also contribute to a box. This is your Maximum-Out-Of-Pocket, or 'Box B.'

 What is a Maximum-Out-Of-Pocket (Moop)? Investopedia defines it as follows: "The maximum a health insurance policyholder will pay for covered health care over the course of the policy year." I define it as: "An insured maximum financial liability for medical care during a given policy term." This means that once Box B is full and can hold no more money that the insurance company stops the Coinsurance Arangement and begins to cover medical expenses at 100% of covered costs. Now, Box B is a rather cool box. It is twice as big as Box A - meaning it holds twice the amount of dollars, it gets filled up dollar for dollar with Box A as well. Meaning that if your Box A holds $1000, as you spend money towards your deductible the insurance company counts that towards your Moop as well! A good way to visualize this is with the following example: You go to the doctor and the visit costs $100. This is your first usage of your medical coverage, so you have $0 applied to your deductible before this visit. The insurance company does not help cover the cost yet, as your deductible has not been met. Therefore, you pay the $100 for the visit, and the insurance company counts this $100 towards your Deductible and your MooP! Box B does not stop being cool yet, once your deductible is met and Box A is full, there needs to be a place for coinsurance dollars to be counted towards. Coinsurance and Copays stack on top of your Deductible Expenses in Box B. In the end, when you sit back and look at everything, the value associated with Box B is really your MAXIMUM amount that you will spend on covered medical services. With the relatively few procedures that can be excluded under the Patient Protection and Affordable Care Act, the number on Box B is the maximum that a subscriber is to be liable for on their medical care under the 12 months of the policy term. Of course, you have to pay your premium in addition to this number.

 Health Insurance can be a complicated product, that why here at Lerner, Csernai & Fath Financial Group we are willing and ready to help you navigate down the correct path. With the correct guidance Health Insurance can be understood and you can be placed in the correct plan. Our Benefits Department is staffed with staff who deal solely within the Benefits world on insurance, and specialize to serve both individual and group clients in Michigan. Feel free to reach out to us, we are here to help, and WE CAN GET YOU THERE!

- Derek A. Lodholtz, Benefits Specialist Lerner, Csernai & Fath Financial Group 15505 Waldron Way Big Rapids, Mi 49307 - The above content is meant to inform and does not convey the opinion of the author (Derek Lodholtz) or the Firm (Lerner, Csernai & Fath).

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