By In General Benefits Knowledge, Health Insurance

Picking a Health Plan, Part 2: Understanding Coverage-Level Details Like Copay, Coinsurance, Prescription Drug Tiers and More

In the first part of this two-part post, we covered premium and deductible, which are the two main considerations most of us look at when deciding to pick a health plan every year through our employer or on the open market.

There’s no doubt that your FI minds should gravitate to what you might spend on an annual basis, combined with how much you’re on the hook for if you have to see a doctor or specialist. But the way health plans get priced the way they do depends on their coverage levels — copays, coinsurance, prescription drugs, mental health coverage and more. This post digs deeper into those plan variables to help you decide what’s going to be the most cost-effective and compatible plan for your and your family’s personal health needs.

Copay

A copay is fairly straightforward in insurance plans. But they can vary a bit from plan to plan. Generally speaking, the copay is exactly as it sounds — you and the insurance company (AKA your employer) pays a portion of certain services and you pay the rest. It’s usually done on a flat-fee basis. For example, you pay $25 for a visit to your doctor and your insurance pays the rest. Doctor charges $125 for an office visit? Your cost is $25. Your work friend’s doctor charges $150 for an office visit? Her cost is $25.

That doesn’t mean that you should shop around for the most expensive doctor. It simply means you can rest assured that, as long as your doctor is “in-network” then you will always pay the same price to visit them.

But there are several very important caveats to this flat-fee arrangement.

  • Your copay is for the office visit only, i.e. it covers you sitting on that wax paper in the exam room and having your doctor come in and shake your hand. Maybe you won’t pay extra for the popsicle stick he puts in your mouth and the plastic protector thing he uses to look in your ears. But if you get shots, x-rays, or much anything else, you’ll have an extra charge.
  • If you have an HMO plan, then your doctor almost certainly will have to be “in-network,” meaning that your insurer has pre-approved them for coverage. If your doctor is not in-network, you will likely have to pay full-price for any visits.
  • If you have a PPO plan, you may be able to visit a doctor that’s “out-of-network” and still pay the copay. But read you coverage details very carefully before you assume that you’re good with whatever doctor you want, because frequently your copay will only apply to in-network doctors, and almost always it will only apply to a general practitioner or primary care provider (PCP), which means no specialists like a gastroenterologist or internal medicine or anything else.
  • If you have a deductible, which you almost certainly do, you may need to cover your deductible before your copay applies. In other words, you’ll pay your doctor’s full $125 until you visit them so many times that you’re $1,000 deductible is met. Just like car insurance. But check your specific plan to be sure, because sometimes your copay applies pre-deductible, along with certain other kinds of visits that are inexpensive or free before you cover your deductible (see below).

Long story short, copays can be a good money-saver so long as you follow the rules your given for them.

Coinsurance

Like the copay, coinsurance means that your insurance pays some of the bill and you pay some of it. Unlike the copay, coinsurance is usually done on a percentage basis, not a flat fee. For example, if you go to your doctor for an injury and are told you need to get surgery, you may have a coinsurance rate of 20%, meaning you pay 20% of the costs and your insurance pays 80%.

Like copays, stipulations apply depending on what kind of coverage you have and the comparative generosity of stinginess of that coverage.

  • There can be different coinsurance rates for different kinds of services. Some of them may not have coinsurance at all but more of a copay. Example: An x-ray may cost you a certain flat fee if you have the x-ray done with an in-network provider.
  • Elective procedures like cosmetic surgery frequently have low coinsurance rates or none at all. So if you were hoping to get that nose job on your company, keep hoping.
  • It’s worthwhile to take take a look at the fine print on your plans to see what exactly is covered and at what rate of coinsurance, just in case you have a reason to confirm coverage levels for certain procedures.

Prescription Drug Coverage

Depending on where you are and how your employer has had your coverage set up, prescription drug coverage may be “carved out” of your health insurance. That’s just a bureaucratic way to say that your prescriptions are covered separately from, but in coordination with, your health insurance. You may have heard recently in the news about pharmacy benefit managers (PBMs), which are the companies that manage certain Rx carve-out programs.

We’ll talk a lot more about prescription drugs and how to try to save money in future posts, but for the purposes of picking the right coverage for your needs, it’s important to know that prescription drug coverage is increasingly organized into multiple tiers: generic drugs, common brand-name drugs, and specialty drugs. The importance of these tiers is that you may have a copay for some but not for others.

Here is a common setup for a three-tiered prescription drug plan:

Tier 1: Generic Drugs Any common drugs for which a generic version is available $5 copay
Tier 2: Common Brand-Name Drugs Any common drugs for which only a brand-name is available or for which you choose to get the brand-name version $20 copay
Tier 3: Specialty Drugs Any brand-name prescription with a special purpose, like treating a chronic condition (e.g. diabetes) or disease (e.g. cancer). Insulin for diabetes: $65 copay.

 

Cancer treatment: No coverage.

 

The big thing to know about prescriptions is that, if you have a regular need for them, make sure that the plan you choose provides you with some kind of benefit. Also, keep in mind that the benefit can and usually does apply even if you have a high deductible. For example, you may have a high-deductible health plan (HDHP) with a $5,000 deductible, but if you get a prescription for a generic drug and show your prescription drug coverage (or health insurance, if they’re one and the same) card at the pharmacy, it’ll still cost you just $5.

Just remember not to overlook your prescription drug coverage when making your coverage choices for the year, because prescriptions can end up costing you a lot of money that you’d much rather put toward retiring your debt and saving for retirement.

Mental Health Benefits

In the past, it was rare for health insurance to cover anything related to your mental health. Thankfully, a combination of legislative changes (the Affordable Care Act) and changes in public attitudes toward and demand for coverage of mental health (thanks, millennials!). As a result, it’s more common to see greater coverage of things like therapist and/or psychiatrist visits, mental health prescriptions, group therapy, and more.

If you have a need to mental health coverage, be sure to read the fine print on your plans to ensure you are selecting which one is best for your personal needs.

Essential Health Benefits

Everyone’s health needs can be different, and you may want to check plans for different types of coverage that serve your needs. The Affordable Care Act was passed in 2010 and in the years that followed, it added “essential health benefits” that were required to be covered by all health plans. You’ve probably heard something about the debate over “preexisting conditions,” which is not an essential health benefit but rather just a guarantee that if you have any kind of condition — diabetes, a previous cancer diagnosis, depression — then your insurance through your employer or through an ACA marketplace can’t decide not to cover you for these conditions in the future.

Here’s an article from AARP (that’s for over-50 retirees, but still some good advice for those shooting to wrap up their work lives before then!) that explains what you get because of the essential health benefits guarantees.

So now that you have a bit more knowledge about how and why health plans are set up the way they are, get out there and pick the plan that’s going to do the most for your savings mentality while also ensuring that you’re savings plans aren’t derailed by an illness or injury!

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