Medicare Copays Coinsurance and Deductibles Explained
Before you look under the hood of your insurance policy, let’s go over a few terms.
Once you have a handle on the four terms below, you have a better understanding of how Medicare and other health policies work.
Three of these terms are cost shares.
Cost shares are:
What’s a Copay?
A copay is usually a small amount you pay each time a service is delivered. This is a flat fee; it is not a percentage. You might, for example pay a $20 copay for each doctor visit. You might pay $5 for each generic prescription.
Copays are not always small. You may have a daily copay of several hundred dollars for the first part of your stay. Your insurer will probably cover 100% of your stay after you pay about four copays.
Coinsurance is the only cost share that is expressed as a percentage. The most common percentage is 20%, but coinsurance can be higher or lower.
You may pay a percentage of certain expenses. For example, some policies will ask you to pay 20% of the cost of an out-patient surgery.
What is a Deductible?
A deductible is a flat fee that is paid once per year. Your Medicare Advantage Plan may have a medical deductible. It may also have a prescription deductible.
Some plans have neither a medical deductible nor a prescription deductible.
If your plan has a medical deductible, you will only be required to pay it if you require certain medical services. For example: You may pay it if you have surgery or a hospital stay.
If the cost of the service is less than your deductible, you will only pay the cost of the service.
Once you have paid your deductible, you will not have to pay it again for the rest of the calendar year.
If your deductible is $1,000 you might meet your deductible by paying $1,000 towards the cost of an outpatient surgery. You might pay $500 twice for the cost of two separate services. Either way once you have paid $1,000, you won’t be charged again for your medical deductible until the following January.
Prescription deductibles typically do not apply to lower cost drugs. You can expect to pay only a small copay for tier one generic drugs and tier 6 drugs. You may not pay any copay for certain inexpensive drugs.
Even after you have met your deductible, you may continue to pay copays and coinsurance. When you reach your out-of-pocket maximum, you will no longer have to pay any cost shares for medical expenses for the rest of the year.
What is an Out of Pocket Maximum?
This is the fourth term.
All Medicare Advantage Plans have an out of pocket maximum. This isn’t the case for Medicare Supplement Plans.
An out of pocket maximum limits what you can pay for medical expenses during a calendar year. After you reach this limit you won’t have to pay any more copays, coinsurance or copays until the following January. (Unless you switch plans in the middle of the year.
No Medicare Advantage Plan or Prescription Drug Plan has an out of pocket maximum that applies to drugs. (Medicare Supplement Plans do not cover drugs.)