Quick Answer
Premiums keep coverage in force; deductibles, copayments, and coinsurance describe different member costs when care is received. The plan's allowed amount, covered-service rules, and network determine how those costs apply. An out-of-pocket maximum limits certain covered cost sharing, not every expense or the premium.
What Does Each Health Cost Mean?
| Amount | What it means |
|---|---|
| Premium | The recurring amount paid to keep coverage in force. |
| Deductible | The eligible-cost amount the member pays before specified plan sharing begins. |
| Copayment | A fixed amount for a specified covered service. |
| Coinsurance | A percentage of the covered or allowed amount. |
- The gross premium is the coverage price before financial assistance.
- The net premium is the member's payment after premium assistance is applied.
- To find a member's deduction for a shared premium, subtract the employer's contribution from the total premium. Divide the remainder by the stated number of equal payroll deductions for that period.
One service may use a deductible and coinsurance while another uses a copayment. The Summary of Benefits and Coverage, a summary of the plan's benefits and member costs, explains which rule applies.
An allowed amount is the plan-recognized amount used for a covered service's benefit and cost-sharing calculation. It can be lower than the provider's bill.
Exam Tip: Gotchas
- A deductible is a dollar threshold; coinsurance is a percentage.
- A premium is not the same as a payment made at the time of care.
Work through a covered bill
Assume a covered, in-network service has an allowed amount of $1,000. The member has $200 left on the deductible and then owes 20% coinsurance. This example has no copayment or other applicable limit.
- The member pays the remaining $200 deductible. That leaves $800 of the allowed amount.
- The member pays 20% of $800 = $160 in coinsurance.
- The member's total is $360. The plan pays the remaining $640.
The order and amounts can differ under another plan. Start with its covered-service and allowed-amount rules before doing the math.
How Do Allowed Amounts and Member Limits Differ?
Insurers and network providers may use an allowed amount that is lower than the provider's billed charge.
- The member's share is usually calculated from the allowed amount for in-network services.
- Out-of-network providers may bill additional amounts when permitted, so network status changes the financial result.
Some contracts call the benchmark usual, reasonable, and customary (URC). Others use the reordered name usual, customary, and reasonable (UCR).
- URC and UCR refer to a contract-defined benchmark based on what providers in the relevant geographic area usually charge for the same or similar service.
- It is not one universal average or percentile. The plan's recognized amount can differ from the provider's billed charge and from another insurer's calculation.
- Read the policy's definition before estimating payment; do not assume that a billed charge is automatically an eligible expense.
An out-of-pocket maximum limits covered cost sharing that counts toward the plan's limit.
- Premiums, noncovered services, out-of-network care, and permitted charges above the allowed amount generally do not count.
- The policy or plan summary explains what is included.
Exam Tip: Gotchas
- A member's out-of-pocket maximum limits counted member costs. An insurer's benefit maximum limits insurer payment; they cap different amounts.
Compare total cost, not one number
A low-premium plan may have a higher deductible or greater cost sharing.
- A higher-premium plan may reduce the member's cost for certain services.
- Compare expected care, provider access, covered prescriptions, network rules, deductibles, coinsurance, and the maximum the member could pay for covered services.
When Can the Plan Support HSA Contributions?
A Health Savings Account (HSA) is an individually owned account with favorable federal tax treatment for qualified medical expenses. It is separate from the insurance plan.
- High deductible alone does not establish eligibility for ordinary new contributions. The person must have qualifying coverage, no disqualifying other coverage, no Medicare enrollment, and must not be claimable as another taxpayer's dependent.
- Under current federal guidance, qualifying Bronze and Catastrophic plans available as individual coverage through an Exchange, the federal or state individual health-insurance Marketplace, receive special high-deductible-plan treatment. The person's other eligibility conditions still apply.
- Check the plan documents and current Internal Revenue Service (IRS) guidance before stating that a person is eligible to contribute.
- Keeping and using an existing HSA balance is separate from eligibility for new contributions. Losing contribution eligibility does not, by itself, end account ownership or prevent qualified withdrawals.
What Should You Check on Exam Day?
- Can you distinguish premium, deductible, copayment, and coinsurance?
- Which expenses count toward the out-of-pocket maximum?