The Copay & The Deductible – Defined
TO REALLY KNOW WHAT you’re up against in the health insurance game, and to define some terms I’ll frequently be using throughout this book, I thought I would go over the basics first. Just like when I started medical school and one of the very first courses I took was Anatomy; to get a grasp on the whole, it’s important to know the various parts.
To help us do that we’re going to dissect a real, live health insurance policy – my own.
Here’s my Blue Cross/Blue Shield card from 2016:
Notice that none of the terms I’m about to define are printed on this card; instead, the only useful information I’m given about my coverage has to do with my pharmacy benefits. But since I get my high blood pressure and high cholesterol medicines from a $4 list pharmacy anyway, I only spend about $80 a year to buy them (each prescription costs $10 per 90 days supply). So I don’t use my health insurance to buy my medications.
I do carry my card with me wherever I go, though; with my identifying information (Group Number, Plan ID), my plan details can be looked up within minutes on the internet. To fill in what’s missing from my card, however, here’s the other information from my policy benefits guide:
COPAY – None. Which is not the same as a zero copay. My policy doesn’t offer a copay at all.
DEDUCTIBLE – My annual deductible is $2,500
COINSURANCE – My coinsurance rate is 25%
OUT-OF-POCKET MAXIMUM – My policy has a $3,000 annual out-of-pocket maximum limit
PREMIUM – I pay $240 per month, or $720 per quarter. For a total of $2,880 per year. Here’s a copy of my latest statement:
At this point I want to strongly encourage the reader to find your health insurance card and gather up the other policy details I just listed – these can usually be found in your policy benefits guide on your insurer’s website, or you may have to call them for the details. Trust me, though; it’ll be worth your while to have this information while you read this chapter.
So without further ado, here are some very important health insurance terms that if you’re not already familiar with, you should be. In each case, I’ve copied the official definition from healthcare.gov, the website for the Affordable Care Act first. Then I follow that with my take on what the term really means, and finally, I’ll give you what I consider to be the bottom line.
First, let’s start with that most devilish of all the insurance terms, the beloved copay.
COPAYMENT, or COPAY
A fixed amount ($20, for example) you pay for a covered health care service after you’ve paid your deductible.
Let’s say your health insurance plan’s allowable cost for a doctor’s office visit is $100. Your copayment for a doctor visit is $20.
If you’ve paid your deductible: You pay $20, usually at the time of the visit.
If you haven’t met your deductible: You pay $100, the full allowable amount for the visit.
Copayments (sometimes called “copays”) can vary for different services within the same plan, like drugs, lab tests, and visits to specialists.
Generally plans with lower monthly premiums have higher copayments. Plans with higher monthly premiums usually have lower copayments.
COPAY – DR. WACASEY’S TAKE
For decades the copay was all you had to pay when you needed health care, but those days are long gone. The problem is, many people believe that this is still the case.
It isn’t. Nowadays most plans have a high deductible, which means that you are on the hook for a huge amount of money – be it $1,000, $3,000, or $5,000, before your health insurance chips in.
So…it doesn’t matter what your copay is.
Seriously, it doesn’t. Take another look at the healthcare.gov definition, where it says “A fixed amount ($20, for example) you pay for a covered health care service after you’ve paid your deductible.” Sneaky, sneaky. As are most things when it comes to health insurance.
Think of it this way: unless you’ve already met your deductible, then that $20 copay is really just how much you’ll have to fork over, so you can get out the door. Without the office staff calling the cops on you.
So why do we even have copays today? I can think of three main reasons:
First, low copays make awesome marketing tools to sell expensive policies, so health insurers just love, love, love them. So do a lot of Americans, who will literally spend (or make their employer spend) thousands of extra dollars to buy a “better” plan, that has a lower copay.
Ask anyone – friends, family, neighbors, and I’ll bet most of them will tell you that a low copay is a key factor in picking the best health insurance plan.
Second, copays maintain the illusion that your outrageously expensive health insurance policy is worth what you (or your employer) have to pay for it. In reality, though, copays are just a bait-and-switch to make you think that you’re still getting a bargain. Instead of $100, with the Gold plan your office visit “will only be $20 today.”
That is no bargain, though, because there’s a catch. You can lay your $20 down but…unless you’ve met your deductible, sooner or later, you will pay the rest of the full $100 charge for that visit (although I hear from my colleagues that people still complain that $20 is too much).
Third, a $20 copay keeps you from screaming at the doctor’s office staff, if not the doctor. Seriously, when was the last time you went in for an office visit and were told, “Your visit today is going to be $100?” Not recently, I’ll bet.
The office is happy to make you only pay twenty bucks, regardless of whether you’ve met your deductible or not. Because they don’t want you to go somewhere else where the same service appears cheaper (“Doctor X will see me for my $20 copay!), and they know that’s not all you’re going to pay them – after all is said and done.
By the way, what’s my copay? Well, I save money on my health insurance, because I chose a policy that doesn’t even offer one.
Oh, and if you’re one of those who thinks that a doctor’s visit isn’t worth twenty bucks anyway, have you been to the movies lately?
COPAY – THE BOTTOM LINE
A copay handed over at the time of service doesn’t mean that the fun is over. It’s just the down payment on what you’ll eventually owe, and a few weeks later you could be in for a nasty surprise when you get a huge bill for the rest.
Just like audio and video cassette tapes, copays are a thing of the past, and should be put on the top shelf in the Museum of 20th Century Health Care Curiosities.
Copays SHOULD NEVER BE CONSIDERED when shopping for a health insurance plan.
The amount you pay for covered health care services before your insurance plan starts to pay. With a $2,000 deductible, for example, you pay the first $2,000 of covered services yourself.
After you pay your deductible, you usually pay only a copayment or coinsurance for covered services. Your insurance company pays the rest.
Many plans pay for certain services, like a checkup or disease management programs, before you’ve met your deductible. Check your plan details.
All Marketplace health plans pay the full cost of certain preventive benefits even before you meet your deductible.
Some plans have separate deductibles for certain services, like prescription drugs.
Family plans often have both an individual deductible, which applies to each person, and a family deductible, which applies to all family members.
Generally, plans with lower monthly premiums have higher deductibles. Plans with higher monthly premiums usually have lower deductibles.
DEDUCTIBLE – DR. WACASEY’S TAKE
Just like the copay, for decades Americans understood that once you met your deductible, that was it. You were through paying for any health care charges that year.
Tens of millions of Americans still believe, though, that once they’ve reached their deductible, they don’t have to pay anything else toward health care costs. They are hung up on the idea that a low deductible means better health insurance.
But – and I cannot emphasize this enough – it doesn’t. Because now there’s a new kid in town called the out-of-pocket maximum. And this here, is where the buck stops. Not with the deductible.
I don’t want to get ahead of myself, but what the out-of-pocket maximum means is that no matter how much your deductible is – $1,000, $3,000, or $5,000 – once you reach it, you’re not off the hook for any more health care costs.
It just means that after you’ve met your deductible, you’ll only pay a percentage of any other charges (in the form of coinsurance, as we’ll see next), until you reach your out-of-pocket maximum.
Confused? Don’t be. The nice Obamacare folks themselves even spell it out for you, but once again the devil is in the details: reread the second sentence in the healthcare.gov definition, where it says “After you pay your deductible, you usually pay only a copayment or coinsurance for covered services.”
That’s a pretty big usually, and the use of this wording proves that once you hit your deductible, you ain’t through paying the Piper. The skullduggery gets worse, too, because the official healthcare.gov definition officially lies here – just take a look at the short sentence that immediately follows: “Your insurance company pays the rest.”
To quote one of my favorite movie lines, “bool sheet.” I know it may be hard to fathom, but unlike most other, reliable statements that come from the government, this one is simply not true folks.
It’s a crafty kind of dishonesty, however, called a lie by omission, because the wording omits, or leaves out important information that you need to know. Specifically, it fails to illustrate just how much the coinsurance you usually pay will keep adding up, until you reach that point where the buck truly stops – the out-of-pocket maximum.
Which for 2016 is capped at $6,850 for individuals, or $13,700 for families.
That’s a lot of money, and what it really means is that you shouldn’t be tricked into believing that your insurance company “pays the rest.” Because if you have a $1,000 deductible – but a $6,850 out-of-pocket maximum – you could still be responsible for thousands of dollars. Even after you’ve met your $1,000 deductible.
Allow me to translate this into plain English. Pretend you:
- Have a deductible of only a thousand bucks (good for you), and
- You come down with a serious illness and get hospitalized for a month.
- Your health insurance will kick in once you reach your deductible, but it will only pay a part of the charges after that;
- You will have to pay a percentage of those excess charges too, and
- If your charges are high enough, you could still end up owing an additional $5,850 for yourself. Or an additional $12,700 for your family. Even after you’ve paid that $1,000 deductible.
So see? Just like our old friend the copay, the deductible isn’t at all what you thought it was. And it doesn’t matter how low (or high) it is either, because a deductible doesn’t give you any kind of prediction of how much you could spend on health care.
Think of it like this: your deductible is not a stopping point to your financial risk. It’s just a point where your out-of-pocket expenses slow down. But they could still go way, way up.
So why do we even have deductibles? Well again, to create confusion, confusion, confusion. It’s almost as if it was meant to be that way…
Don’t worry, it is. Deductibles are the most powerful marketing tools going for health insurance today. Look, no one wants to be told that they might really be looking at spending $13,700 this year. So let’s make it $3,000. Or even $1,500!
And best (or worst) of all? Your insurer will charge you big bucks for upgrading to a plan that gives you the illusion of having that lower financial responsibility.
And thanks to the widespread, almost universal belief that lower deductibles equal better health insurance, from sea to shining sea Americans fall for it. And they waste billions – if not tens of billions – of dollars a year to “go for the Gold” and upgrade their health insurance policies.
The times they are a-changing, though. Read on, and you’ll see.
As I noted above, my deductible is $2,500, which means I’ll have to spend at least $2,500 if I get sick, or hurt badly enough. But having the higher deductible also means I’m saving money too, and reinforces my point about not having a copay. I mean, why would I ever pay Blue Cross extra so I can have a copay, when my deductible is already $2,500?
DEDUCTIBLE – THE BOTTOM LINE
Today, deductibles are meaningless and have outworn their value to everyone except the health insurance company’s profit margin. So don’t be fooled by the promise of a low deductible – to see what you really might have to pay in case of serious illness or injury, look up your policy’s out-of-pocket maximum.
Deductibles SHOULD NEVER BE USED to help decide which health insurance plan is best.
Let a physician who’s also a health insurance agent show you how to find the best plan, and get the best prices on health care. Check out The Guide to Buying Health Insurance, and Health Care. Available NOW on Amazon, iTunes & Nook.