Health insurance policies are divided into levels of financial responsibility for the policyholder: deductible and co-insurance. Although the probability of meeting deductible in any given year is somewhat unlikely, it is important to understand the insured’s financial responsibility in case deductible is met.
Charges credited toward deductible are calculated on an annual basis. If network providers are used, the charges are based on the contracted network rate. If non-network providers are used, either there are no benefits for out-of-network providers or these charges are credited to a separate non-network deductible, which is typically much higher than the policy’s in-network deductible. Benefits are always available, whether in-network or out-of-network in emergency situations. An emergency is strictly defined as the potential loss of life or limb.
At the beginning of each calendar year deductible returns to zero, and charges begin to be credited towards deductible based on the date service is provided. If deductible is not met by the end of the calendar year, the amount credited at year-end does not carry over to the next year.
As was stated previously, the probability of reaching deductible in any given year is unlikely. In fact, a large Texas carrier informed Stateside that 87% of all of their policyholders do not incur over $2,000 in claims in any given year. However, if deductible is met, all charges for approved services from that point are subject to the co-insurance benefits. The co-insurance benefit means exactly what the term implies — both the health insurance carrier and policyholder share the cost of services received. The sharing percentage varies by policy, but typically the percentage arrangement is either 60%/40%, 75%/25%, 80%/20%, 85%/15%, 90%/10%, or 100%/0%. The higher percentage refers to the insurance carrier’s financial responsibility. Major medical policies will include a co-insurance maximum or stop loss which is the maximum amount a policyholder will pay at the co-insurance percentage. The co-insurance maximum is typically $8,150 but can be lower for Silver and Gold plans.
The easiest way to understand how co-insurance works is to look at what happens to each dollar of service received above deductible. Let us look at a policy with a $2,500 deductible and a co-insurance rate of 75%/25% with a $5,500 out-of-pocket maximum including deductible for the policyholder. After the $2,500 deductible is met, the policyholder will pay 25 cents and the insurance carrier will pay 75 cents of claims until the policyholder reaches maximum out-of-pocket. The policyholder will have paid $3,000, which represents 25% of the claims above the deductible, and the insurance carrier will have paid $9,000 or 75%. Total claims will have reached $14,500 ($2,500 deductible, $3,000 coinsurance both from the policyholder, and $9,000 from the insurance carrier), at which time the carrier will pay 100%.
Co-insurance on the surface appears to be a complicated arrangement, but in reality, it is a very simple and straightforward practice. Health insurance policies are based on who takes responsibility for risk. The risk associated for each dollar incurred up to deductible is assigned to the policyholder. Each dollar incurred from deductible to the co-insurance maximum is shared, with the insurance carrier bearing more of the risk as reflected by the higher co-insurance percentage. Once stop loss or the co-insurance maximum is reached, the insurance carrier assumes all of the risks, since 100% of the claims are paid by the carrier.
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