: What’s the difference between co-pay and co-insurance
Many companies are considering increasing co-insurance payments by employees to cut the overall costs of health care benefits. If you’re like most people, you may think they are the same. But while it is true both terms refer to the portion of medical bills you pay out-of-pocket, these two types of cost-sharing are quite different
A co-pay is a fixed amount that you pay each time you see a doctor or fill a prescription, usually around $10 or $20. Co-insurance is the percentage of the cost of doctor visits, hospitalizations and prescription drugs that you must pay under your insurance policy. Let’s say your policy calls for 80/20 co-insurance. After you meet your deductible, you must pay 20 percent of your medical bills; the insurance company is responsible for the remaining 80 percent.
Many plans demand both co-pays and co-insurance. Co-insurance is especially common when it comes to hospital stays. Of all workers covered by an employer-sponsored group health plan, 51 percent must pay co-insurance for hospital admissions, according to the 2009 Kaiser Family Foundation survey of employer health benefits. The average payment is 18 percent of the total. And 53 percent of covered workers pay co-insurance for outpatient hospital visits, with an average charge of 19 percent.
Co-insurance is common in the individual insurance market. And as companies head into this fall’s open enrollment season, many are considering a switch from co-pay to co-insurance as a way to increase employee cost-sharing and contain rising health benefit expenses, said Tom Billet, director for health and group benefits at the consulting firm Towers Watson.
Because of the confusion involving co-pay and co-insurance, many patients don’t realize just how much it may cost them until they become seriously ill or are hospitalized, said Lynn Quincy, a senior policy analyst at Consumers Union. “Ten or 20 percent may not sound like much, but 20 percent of a $100,000 surgery is a lot of money,” she said.
Co-insurance payments can add up quickly for seriously ill patients. It’s not unusual, for example, for a cancer patient to need $40,000 worth of medicine in a given year.
“Co-insurance on that could be as much as $14,000, and that’s just for the drugs. That’s not even counting going to the doctor or the hospital yet,” said Stephen Finan, senior director of policy at the American Cancer Society’s Cancer Action Network.
High co-insurance and other out-of-pocket costs, including insurance premiums, can sometimes discourage patients from receiving the treatment they need. One in three individuals under age 65 diagnosed with cancer has delayed needed health care in the last 12 months, according to a Cancer Action Network poll.
Many group policies provide limits on annual out-of-pocket expenditures, including co-insurance, deductibles and co-pays. With these plans, once you pay, say, $5,000 or $6,000 for a single person in approved medical bills, your insurer will cover 100 percent of additional treatment. The new health care law will limit all cost-sharing, including co-insurance payments, beginning in 2014.
For now, many people rely on individual insurance plans that often have much higher annual maximums (if any) than group policies. And even in those plans with reasonable limits, annual out-of-pocket costs can add up to a devastating amount if you are seriously ill for an extended period of time.
That’s why it’s important to keep co-insurance in mind when you shop for a health care policy or choose from your employer’s options during open enrollment this fall. Here’s what to look for:
As mentioned above, most policies have limits on how much patients can pay each year in medical bills. These limits vary widely depending on the type of policy. For a single person in a group plan, the limit could range from $2,500, on the low end, to as much as $6,000. For family coverage, maximums are usually double that.
Check carefully to determine what percentage of co-insurance you are expected to pay and what the annual limit will be. If you are considering a high-deductible health plan, don’t assume that you won’t also have to pay co-insurance. “Even with the high cost of the deductible, most of these policies still expect you to have more skin in the game,” said Mr. Billet.
The good news is that high-deductible health care plans that qualify for the tax advantages of a health savings account are required to limit out-of-pocket expenses, including deductibles. This year the maximums, as determined by the I.R.S., are $5,800 for single coverage and $11,600 for family coverage.
Under some insurance policies, cost-sharing maximum limits are much higher for out-of-network charges.
“That’s why it is really important to know exactly what you are doing and what you are responsible for paying when you go out of network,” advised Mr. Billet. Too many people make the decision lightly, he added, because a friend or family member recommended a certain doctor or hospital, not realizing just how much of the bill they would have to pay.
If your health policy seems not to charge co-insurance, check the fine print.
Many network plans, like health maintenance organizations and preferred provider organizations, charge no or low co-pays for network providers, while assessing hefty co-insurance percentages for any out-of-network care you receive.
This is where co-insurance can get expensive.
“When you go out of network, you may say to yourself, ‘My insurance is covering 80 percent, that doesn’t sound so bad,’ ” said Mr. Billet. “But in the end your insurer may cover less than 80 percent of your actual bill.”
That’s because insurers often pay based on usual and customary charges for a specific treatment in your geographical area. So if a specialist charges you $300 for a visit but the insurer deems the usual and customary fee to be $250, your insurer will cover only $200 of the fee (80 percent of $250), not the $240 (80 percent of $300) you were expecting.
In most cases, your health care provider will often bill you directly for the $40 difference, a practice known as balance billing. Many states prohibit balance billing by in-network providers, but it is legal for out-of-network practitioners.
For one doctor’s visit, the extra charge may not seem like much, but if you become seriously ill and need out-of-network care, the combination of co-insurance and balance billing can amount to tens of thousands of dollars, said Mr. Finan.
Better data on reasonable fees is on the way. After the New York state attorney general, Andrew Cuomo, found that the methods used to determine usual and customary rates were flawed and conflict-laden, a new nonprofit company started compiling revised data with the aim of reflecting fairer prices. The new tools should be available in the first quarter of 2011.
QUIZ THE INSURER
Research the in-network options offered by your company’s plans. You may find you don’t need to go out of network after all. If you do, call your insurer to find out exactly what is covered before you receive treatment.
If you can make a persuasive case that you truly need specialized care that isn’t available in your network, your insurer may make an exception and cover the costs as if you were being treated by an in-network provider.
With rising drug costs, it can be hard to estimate a co-insurance payment when reviewing plan options for the coming year. If you regularly take a prescription drug, check with the plan’s customer service number or Web site for up-to-date prices, so you’ll know what your share of the bill will be in advance.
Some insurers also offer information on lower-priced alternatives.