The Facts about Cost Sharing

No matter what kind of health plan you get, you’ll probably have to pay something. Here are the types of payments you may have to make—and how to make your dollars stretch as far as possible.

First, you’ll have to pay a premium, a regular, often monthly, payment to buy and keep up your coverage. If you have coverage through your employer, your premium amount is usually deducted from your paycheck before you pay tax on it. You must pay this amount whether or not you use any healthcare that month.

In addition to the premium, most health plans require cost sharing. That means that when you do use healthcare, you pay part of the cost and your insurance pays part.

Cost sharing takes different forms. First, you may have a deductible, a set dollar amount that you must pay each year before your plan starts paying for healthcare services. Next, you may have a copay (or copayment), a set dollar amount for each healthcare service, such as a doctor visit or a lab test. And you may have to pay coinsurance, a percentage of the cost of the service.

Choosing Your Costs
When you’re shopping for a health plan, read the plan documents carefully to understand what your premium and cost sharing will be. If you have questions, ask an insurance company representative or your employer’s human resources department.

Ideally, you would like all the costs to be as low as possible. But you’ll still have some choices to make. For example, in a high-deductible health plan, you pay a low premium, but your deductible is relatively high. In many cases, that means you’ll probably have to pay out of pocket for all or most of your routine care. Your insurer will only start paying once you’ve met your deductible. Even then, you may still have to pay copays or coinsurance, or both.

A high-deductible health plan can be a good choice if you normally don’t require a lot of healthcare. If you do need a lot of healthcare, you might prefer to pay a higher premium to get lower deductibles, copays and coinsurance.

Keeping Your Costs Low
Once you’ve chosen a health plan, there are several things you can do to keep your costs low. One is to use the providers (such as doctors, hospitals and labs) in the health plan’s network. Those providers agree to take your insurer’s contracted rate as payment in full for their services (which includes any required copay). Some types of plans won’t pay anything if you use a provider outside the network. Others will pay a portion, but your share of the cost will usually be higher than if you use an in-network provider. (See Types of Health Plans in this issue.)

Here are some important tips to keep in mind:

  • Spend your copays wisely. Pay attention to tiers, or levels, of copays. Your copay may be lower for a certain tier of doctors, such as a family doctor, pediatrician or gynecologist, than for another tier, such as specialists in cardiology or immunology. Similarly, your copay may be higher for visiting an urgent care center rather than a doctor’s office, and it will probably be highest for visiting an emergency room.
  • Manage prescription drug copays. Often, prescription drugs are also assigned to copay tiers, with generic drugs cheaper than brand drugs. You can keep your costs down by knowing what the copays are for each tier and using the tier that costs the least while still doing what is necessary for your health.
  • Save by catching complex illnesses early. Take advantage of preventive services, such as annual checkups, vaccines and cancer screenings. By law, most health plans must cover certain preventive services at no cost to you, as long as you get them from a provider in your plan’s network. Click here for more information.
  • Take advantage of government assistance. If your income is below a certain level and you get your health plan through the Health Insurance Marketplace, the government will let you know if you qualify for financial assistance. That can take the form of a premium tax credit to help you pay your premiums, or a cost-sharing reduction to lower the amount you have to pay on deductibles, copays and coinsurance. Click here for more information.

Stretching Your Dollars
To help pay your deductible, copays and coinsurance, you can stretch your healthcare dollars by signing up for a flexible spending plan. Such plans let you set aside pretax money from your paycheck to pay for healthcare expenses. Since the money is not taxed, it gives you more money to spend than if you use income that has been taxed. There are several types of flexible spending plans with different rules. For specifics, see the article Flexible Spending Plans in our FH® Insurance Basics series. You might also be interested in our articles on cost sharing and high-deductible health plans.