Co-pay, Co-insurance, Deductible, Out-of-pocket maximum.
What do they mean?
Okiedokie. On the Northwestern Insurance FAQ website, here’s what it says:
“The student insurance plan provides coverage for outpatient service due to illness, inpatient hospital care, mental health or if you need to go to the Emergency Room. The plan has a $250 deductible. After the deductible has been met, students will be responsible for a 20% co-insurance with a maximum out-of-pocket expense of $1,000. After the deductible and co-payment requirements have been met, the insurance will pay 100% of all covered medical expenses up to $500,000. Also, there are is a $20 per office visit co-pay whey you are seen outside of NU Health Service. This co-pay does not count toward your $250 deductible or $1,000 co-insurance. Deductible & co-insurance amounts reset annually September 1st.”
Let’s break this down a little bit, and we can start with the co-pay. The co-pay is basically a fee you pay every time you see a doctor outside of the health center. Sticking with the physical therapy example I noted above, that means that you’ll need to pay a $20 co-pay each time you see the your physical therapist at Awesome PT.
But wait, there’s more! The deductible is the amount of money you have to pay before your insurance actually takes effect. The deductible for Aetna’s health insurance plan is $250 (this amount may change from year to year). So, let’s say that you’ve never sought health services outside of the health center on campus before, and you’re seeing that physical therapist at Awesome PT for the first time. Let’s say that the cost of an initial visit with that physical therapist is $300 (which it may well be), not including your co-pay. You’d pay your $20 co-pay and you *still* owe Awesome PT $250. You’ve paid your co-pay when you have the appointment, and you get a bill in the mail from Awesome PT that says you owe $260.
Wait, $260? Is that a typo? Nope! Here’s where the idea of co-insurance comes in. So, you’ve paid your co-pay, you’ve “met” your deductible of $250, and you still owe $10 on top of that! Why? Because all health services come with a co-insurance of 20%. That means that Aetna only covers 80% of your physical therapy costs (remember, this is for in-network providers, too. For out-of-network providers, it’s a different, and more expensive, story.). So, you’ve paid your $20 co-pay, met your $250 deductible, and your initial visit cost $300. That means that Aetna covers $300 - $250 = $50, but only 80% of that $50. Your co-insurance for that $300 initial visit is 20% x $50 = $10.
In other words, for that initial visit, you owe that $20 co-pay (typically paid when you have the physical therapy service itself) + $250 (your deductible) + $10 (your co-insurance).
Still with me? Ok, let’s say that the cost of each follow-up visit with your physical therapist is $100, and you need 3 more visits. What do you owe? You’ve already paid that deductible, and you only need to pay it once each year, so you’d pay that $20 co-pay plus (20% of $100) $20 for each visit. That’s $40 for each visit, for 3 more visits, that’s $120.
Now, let’s say that it’s September 1st, and your doctor at the health center says that you need three more visits with Awesome PT. Your deductible “resets” each year, which means you need to pay it anew every year. That means that the first two visits count toward your deductible (and you have to pay for them in full), and your insurance kicks in for part of the third visit. Let’s do the math again. For each visit, you pay your $20 co-pay. That doesn’t change from year to year. On top of that, each visit costs $100, a total of $300 for all three visits. Your deductible is $250, so you’d owe $250 (plus those co-pays, of course), plus 20% of $50, so that’s $260 again!
To say it another way, in the new year, here’s how it breaks down:
Visit 1: $20 co-pay + $100 deductible
Visit 2: $20 co-pay + $100 deductible (you’re now at $200 toward your deductible. Only $50 more to go before your insurance kicks in!)
Visit 3: $20 co-pay + $50 deductible + $10 co-insurance (Aetna covers $40)
Make sense? Not really, I know.
The good news is that there is a “ceiling” on the amount you should have to pay for health services. This ceiling is the “maximum out-of-pocket expense,” and it’s $1,800. Let’s say that, in the new year, you’ve really badly injured yourself, and you need lots and lots of physical therapy. How many physical therapy appointments would you need to have before you hit the $1,800 ceiling, your co-insurance disappears, and Aetna covers 100% of your physical therapy? Can you do the math? If each follow-up appointment is $100, and your co-insurance is $20, $1,800/$20 = 90 physical therapy visits before Aetna covers the whole cost of your appointments. Sortof. Those co-pays are still there, and you have to pay them with every appointment. And, like the deductible, the out-of-pocket maximum resets each year. So, the $250 deductible and $1,800 out-of-pocket maximum should really be described as an annual deductible and out-of-pocket maximum.
It’s hard to imagine that anyone would need that much physical therapy, but you may need other kinds of health services, and the cost of those services “count” toward your deductible and your out-of-pocket maximum. So, in other words, if you’re getting physical therapy, and you also need to get a CT scan for something else, you can reach that deductible, and maybe even the out-of-pocket maximum, pretty quickly. To say it another way, the $250 deductible and $1,800 out-of-pocket maximum apply to all of your in-network health services; you don’t have to pay the $250 for each health service provider.
Now, there’s one more piece of the health insurance puzzle to consider. Here’s why it matters whether you choose an in-network provider: Aetna has special “negotiated rates” with particular providers. So, if you didn’t decide to go to Awesome PT, and you picked just the closest physical therapist to where you live (which isn’t on the list of providers you received from the health center), instead, you may get stuck with a much larger bill. Aetna has a negotiated rate with Awesome PT, which is why each follow-up visit is $100. Awesome PT charges other patients $200 for follow-up visits! And if you go with a physical therapist not on the list - say, SuperPremium PT, Aetna may still cover some of the costs, but not at that 80% co-insurance rate. They may only cover 50%, or less, depending on the service. SuperPremium PT may charge you $200 for the same service, and, if Aetna only covers 50% of that cost, you’d end up with a $100 bill for one follow-up appointment! Plus the $20 co-pay! Yikes!
Speaking of expensive things, if you find yourself with a catastrophic injury or illness, it’s good to know that your health insurance plan has an annual cap of $500,000. It’d be pretty rare to reach that cap, but it happens. After you reach it, you’re responsible for 100% of your costs above that $500,000.
Now, go back and re-read the quote from the health insurance FAQs. Does it make more sense now? If not, try re-reading the explanation above.
Why are things so confusing? Why do we have these co-pays, co-insurance, deductibles, and out-of-pocket maximums? Good questions! If you find yourself chatting with a health policy expert, it’d be a good idea to ask them about the histories behind these concepts. They exist for complicated reasons that have to do with the healthcare system in the U.S. and the rising costs of healthcare (and that, in itself, is complicated, too).