The deductible is the amount you have to spend before coinsurance or copayments kick in. Basically, you’re responsible for paying the entire deductible. Sometimes it will be low and easy to reach, but some plans have high deductibles (often balanced by lower deductibles Opens in a new window and other benefits).
If you buy coverage for yourself and your family, each person will have an annual deductible, which works in concert with a larger family deductible for the plan—once you meet the family deductible, coinsurance or copayments are triggered for everyone in the plan (even if they haven’t spent a penny). Depending on the plan, there may even be a separate deductible for prescription medications or other services.
After you meet your annual deductible, you may only have to pay the coinsurance amountOpens in a new window, which is a percentage of each service (the cost is shared with your employer or organization).
For example, let’s say you have your appendix taken out. The cost is $5,000 and your deductible is $2,000. After meeting your deductible ($2,000), you’ll owe 20% in coinsurance on the remainder ($3,000), or $600. For further health care costs, you’ll keep paying coinsurance (or, depending on the plan, copayments) until you reach your out-of-pocket maximum for the year.
3. Copayment (copay)
Some insurance policies have a flat fee, or copay, you must pay when you visit the doctor’s office, refill a prescription or use other services. These payments vary depending on the service. For example, you may pay less for your primary care doctor but more for a specialist. Not all plans have copays; some may have coinsurance instead.
The premium is the amount you pay for your insurance coverage. (If you get coverage through work, you typically pay via payroll deduction.) In general, the higher the premium, the lower the deductible.
5. Out-of-pocket maximum/limit
The annual out-of-pocket maximum or limit is the total amount you’ll have to pay for medical expenses for the year, not including your premiums. The maximum is generally very high, usually several thousand dollars. The lower your premiums, the higher your out-of-pocket limit.
The type of network you have (typically a PPO or HMO) determines how you can access care. It also refers to which doctors, hospitals, specialists, labs and more are covered by your insurance. For example, a doctor or facility that’s in network will be less expensive than one that’s out of network. (In fact, you may have to prepay or face a much higher bill than if you stay in network.)
7. Preferred provider organization (PPO)
You don’t need a referral to visit a specialist with a preferred provider organization (PPO), one of the main perks. Premiums—what you pay for the policy—with a PPO are generally higher than with a health maintenance organization (HMO). PPO plans offer out-of-network coverage without a referral.
8. Health maintenance organization (HMO)
An HMO usually has lower premiums than a PPO. The downside is that you’re more restricted—HMOs typically offer less choice of doctors and facilities—and won’t have any out-of-network coverage except in emergencies.
If you have an HMO plan, you also need a referral from your primary care doctor to visit a specialist. This may be frustrating if you want to see a physician quickly.
9. High-deductible health plan (HDHP)
A high-deductible health plan (HDHP) has low premiums but a high deductible. If you don’t have a chronic illness or you’re scheduling a surgery, you may save on overall costs by choosing an HDHP. Also, picking an HDHP may make you eligible for a health savings account (HSA).
10. Health savings account (HSA)
If you have a high-deductible health plan, you may be eligible for an HSAOpens in a new window—a dedicated savings account for medical and health expenses that’s triple tax free: You fund the account with pretax dollars (your employer may kick in some as well); the account can grow tax free (you might be able to choose investments like mutual funds); and withdrawals are tax free as long as you use them toward qualified health care costs. These include doctors’ visits, lab work, imaging, prescriptions, surgeries and more. Even some over-the-counter medicines are HSA-eligible. (Taxes—and a possible penalty—kick in if you use the account to cover nonqualified expenses.)
Another perk: HSAs are portable—you own and can keep the account even if you leave your job. In fact, you don’t have to use the money anytime soon. This makes HSAs a way to help cover health care costs in retirement.