Everyone is likely to need health care at some point in their lives, making health insurance one of the most important investments you can make. Health insurance plans can be complex — and terms like deductible, coinsurance and copay can be confusing — so it is important to understand the terms of your policy so you can plan and budget effectively.
A deductible is an upfront cost you must pay out of pocket before your insurance coverage will kick in. For instance, if your health insurance plan has a $2,000 deductible on surgical operations and you get an appendectomy that costs $10,000, you will pay $2,000 and the insurance company will pay $8,000. Health costs accumulate toward the deductible over the course of the year. Once you reach the deductible amount for the year, you do not have to pay it again until the next year.
Coinsurance is an additional cost that some health care plans require policy holders to pay after the deductible is met. When you pay coinsurance, you split a certain cost with the insurance company at a ratio determined by the terms of your insurance plan. Coinsurance is often 10, 30 or 20 percent. For instance, with 10 percent coinsurance and a $2,000 deductible, you would owe $2,800 on a $10,000 operation — $2,000 for the deductible and then $800 for the coinsurance on the remaining $8000.
The size of deductible and amount of coinsurance affect the cost of a health care plan. In general, higher deductibles and coinsurance translate into cheaper health insurance premiums because the insurance company pays less toward care. Electing to take higher deductibles and coinsurance may allow you to save on health care costs, especially if you are generally healthy and do not see a doctor frequently.
Coinsurance of 10 percent may seem like a small cost, but if you need care for serious medical problems like cancer, it could still amount to thousands of dollars. Some health care plans pay for 100 percent of costs after the deductible.