Understanding Your Health Insurance: How Your Medical Expenses Get Paid

Understanding Your Health Insurance: How Your Medical Expenses Get Paid

If you have health insurance, but don’t exactly understand how it works, you’re not alone.

In this post, we explain how your bills get paid through a cost-sharing partnership between you and your health insurer.

Every time you see a doctor, receive medical care or stay in the hospital, there are associated costs. Your insurance company is then billed, but the amount you owe depends on these four factors:

  • The amount of your deductible. This is the amount you owe for covered health care services before your health care plan begins to pay.
  • Your coinsurance. This is your share of the costs of a covered health care service, usually a percentage (for example, 20 percent) of the allowed amount for the service. You’re responsible for the coinsurance percentage amount after you’ve paid your plan’s full deductible.
  • Copays. Many plans have copays, which is a fixed amount you pay for a covered health care service, usually when you get the service.
  • Maximum out-of-pocket amount. This is the most you’ll pay in deductible, copayment and coinsurance during the year.

Read more about deductibles, coinsurance and copays here.

So, how do those four factors impact your bill? Let’s say you require a lengthy hospital stay and the total charge comes to $25,000. If you had no health insurance, you’d be paying the entire amount, but thankfully, having insurance coverage means your portion will be less.

In this hypothetical scenario, your deductible is $2,500, your coinsurance is 30%, and your out-of-pocket maximum is $10,000.

You’re responsible for the first $2,500 of the bill, since that is the amount of your deductible. That still leaves $22,500 that needs to be paid. Since your coinsurance is set at 30 percent, you’d be responsible for an additional $6,750, or 30 percent of $22,500.

Between your deductible amount of $2,500 and the coinsurance amount of $6,750, you’re responsible for $9,250 toward the $25,000 bill. Your insurance company would pay the remaining $15,750.

If you needed additional care in the same year, you’d only be responsible for $750, the difference between the $9,250 you’ve paid for medical care for the year and your total out-of-pocket maximum of $10,000. For the rest of the year, any covered medical expenses you receive would also be fully paid by your insurance company since you would have reached your maximum out-of-pocket amount.

If you aren’t sure how much your deductible, coinsurance percentage, copay amounts, or maximum out-of-pocket costs are, you can ask your insurance provider for a Summary of Benefits and Coverage plan explanation that will outline those details for you. If you’re a BCBSM or BCN member, you can find that information at bcbsm.com.

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Photo credit: Ted Eytan

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