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Small Business Employee Benefits and HR Blog

Understanding Health Plan Costs

July 8, 2014
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Understanding health plan terms such as premium, deductible, co-payment, co-insurance, and out-of-pocket maximum is important to understanding the cost of your healthcare. As you evaluate health plan options, here is a list of common terms about the cost of health insurance coverage.Health_Plan_Costs

Health Plan Costs

Premium

The amount that you (or your employer) pay to the insurance company for your plan, usually monthly.

Deductible

The amount you will pay for covered care before your health insurance begins to pay. For example, you may have to pay $500 out-of-pocket for covered services before the insurance company pays. This would be a $500 deductible.

Co-payment

A set dollar amount you pay to your health care provider for a covered service. For example, you may pay a $30 co-pay for each covered visit to a primary care doctor. Or, you may pay a $15 co-pay for each generic pharmacy item.

Co-Insurance

The percentage of allowed charges for covered services that you're required to pay. For example, the health insurance may cover 80% of charges for a covered hospitalization, leaving you responsible for the other 20%. This 20% is known as the coinsurance. If the plan has a deductible, you pay the coinsurance for covered services after the deductible is met.

Out-of-pocket Maximum

The maximum amount of money you will pay for covered services during a benefit period, such as a year. This financial responsibility can vary from plan to plan but can include co-payments, deductibles, and co-insurance. In Medicaid and CHIP, the limit includes premiums.

Category of Coverage

There are four basic levels of plan coverage: platinum, gold, silver, and bronze. As the metal tiers increase in value, so does the percent of medical expenses the health plan will cover. There are also catastrophic plans available to some individuals.

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Source: Zane Benefits Guide to Individual Health Insurance

Premium Tax Credits

Premium tax credits are available to eligible individuals for plans purchased through the individual health insurance marketplaces. Households with income between 100% and 400% of FPL who purchase coverage through a state health insurance marketplace are eligible for a premium tax to reduce the cost of the premium. To be eligible, you cannot be offered affordable, qualified health insurance through an employer. See: How to Qualify for Premium Tax Credits.

Cost-sharing Reductions

Further discounts are available to some individuals that lower the amount you have to pay out-of-pocket for deductibles, co-insurance, and co-payments. You can get this reduction if you get health insurance through the health insurance marketplace, your income is below a certain level (250% of FPL), and you choose a health plan from the Silver plan category. If you're a member of a federally recognized tribe, you may qualify for additional cost-sharing benefits.

What questions do you have about health plan costs and terms?

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