Deductible vs. Copay: What’s the Difference?
If you’re staring down a medical bill, it’s important to understand the differences between terms like deductible, copay, coinsurance, and more. Find the answers you need here.
No one said understanding insurance bills was easy. But if you don’t know the difference between your deductible and copay, you may end up with surprise medical costs.
The good news: You don’t have to figure it out on your own.
“During open enrollment, counselors can guide you through benefits on the plan,” says Michael Hanak, MD. Dr. Hanak is an associate professor of family medicine at the Rush University Medical Center in Chicago. If you don’t have a counselor, then customer service workers can tell you about your options, too.
Some health plans also offer use of a digital health management tool like Wellframe year-round. These smartphone apps help make your experience as smooth as possible. You can search the app’s library for information about your benefits. Or you can contact member services through the app to ask questions on your time and get advice about your benefits. That’s especially handy when you don’t have time to make a phone call or wait on hold.
If you’re ready for some answers, read on. We’ll decode key terms to help you understand what you’re paying for — or not — when it comes to your healthcare.
What Is a Premium?
The premium is the regular monthly payment you make for your health insurance. It’s a fixed rate that doesn’t depend on how often you see a doctor. Some employers pay the entire monthly premium for their employees. Other employers pay only a percentage of the premium. If you’re self-employed, you pay for your premium entirely out-of-pocket.
What Is a Deductible?
The deductible is the amount of money you must spend on medical care before your insurance company kicks in its share. Say your deductible is $1,000. That means you’ll have to pay for the first $1,000 of your medical expenses that year. After that, your plan will take over the payments (except for copayments). But this is where things get tricky.
“Expenses related to non-covered services typically do not count toward deductibles,” says Etosha McGee, CPC. McGee is the director of consulting services for Hospital Pricing Specialists, LLC. For instance, say you see a provider who’s not in your network. Those expenses aren’t covered by your plan, so they may not count toward the deductible. The same may go for things that aren’t considered medically necessary, Dr. Hanak says. A common example is cosmetic procedures such as Botox or tummy tucks that aren’t done for restorative purposes.
If you have a family health plan, you will likely have two types of deductibles:
- An overall deductible for the whole family.
- Individual deductibles for each family member.
Each time a family member pays toward their deductible, it is credited toward the family deductible. With family plans, there are a few ways your policy will begin to pay for your covered benefits, says McGee.
- Scenario 1: Let’s say you’re on a family plan that sets the deductible for each family member at $1,000 and the family deductible at $2,000. You make a few trips to the doctor’s office and you reach your $1,000 deductible. At this point, your plan will begin to pay for your covered healthcare costs — not those for your family members. But you’ll be halfway to reaching your family deductible.
- Scenario 2: You’re on the same family plan as in scenario 1. You haven’t reached your $1,000 deductible, but one of your family members spent a couple of days in the hospital. That visit cost enough to reach the $2,000 family deductible. Now your plan will start to pay for the covered costs for everyone on the family plan, including you.
- Scenario 3: Your family plan has a family deductible but no individual ones. In this case, your family must meet only the overall family deductible amount. “Once [it’s] met, the plan benefits begin for all covered medical expenses for all family members,” says McGee. This is an important difference to understand, so be sure to ask which approach your plan uses.
What Are Copayments and Coinsurance?
Even after you meet your deductible, your plan may have a copayment. A copayment (or copay) is a flat rate that you must pay for healthcare services covered by your plan.
“A copay is all that will be owed for a particular office visit,” says Debra Lowe. She’s the head of revenue cycle for the Ohio State University Wexner Medical Center in Columbus. It doesn’t matter if a covered visit to your doctor costs $100 or $500 — if your copay is $25, that’s what you pay. One thing to note: If you have lab work or other health services that happen before or after the visit, there may be extra costs.
By contrast, some plans have coinsurance. Coinsurance is the percentage of covered costs that you must pay, McGee explains. With coinsurance, what you pay depends on the cost of your visit. For instance, a 20% coinsurance for a $100 covered visit will cost you $20. A 20% coinsurance for a $200 covered visit will cost you $40. “A health plan can have a mix of both copays and coinsurance dependent on the type of service,” McGee notes.
What Are Out-of-Pocket Costs?
These costs aren’t covered by your health plan. They include deductibles, copayments, and coinsurance for covered services. They also include expenses for services that aren’t covered by your plan or out-of-network costs. Examples might be beauty treatments or cosmetic procedures.
What Is an Out-of-Pocket Maximum or Limit?
This is the most you’ll pay for covered medical expenses before your health plan pays for 100% of those costs. Payments toward your deductible count toward the out-of-pocket limit. So do copayments and coinsurance. Premiums don’t.
“Out-of-pocket maximums are now capped by the Affordable Care Act,” says McGee. In other words, if you have a Marketplace plan, the out-of-pocket maximum can’t go over a set amount each year. In 2021, the limit for an individual is $8,550 and $17,100 for a family. (You can buy a Marketplace plan for individuals or families at an online marketplace such as healthcare.gov. These were set up by the Affordable Care Act. The goal: to make sure you pay the same price for a given health plan no matter which marketplace you buy it from.)
Understanding key billing terms can help you make the best healthcare decisions for you and your family. If you still have questions, you’re not alone — but don’t give up before you get answers. Ask your health plan or employer if your plan offers a digital health management tool for health plan support.