Healthcare, health insurance and the medical billing industry are confusing and complex spaces. Sometimes, when talking to insurers and the billing department at your local doctor’s office, it can feel as if they’re speaking a different language. Here is the detailed answer to the most searched query about What is a Co-pay?
Co-pays and deductibles are two of the most common sources of confusion. Learn about what a co-pay is, how co-pays relate to deductibles and how both of these are related to your health insurance plan.
How Health Insurance Works
Healthcare in the United States can be expensive. The full rate for a doctor’s visit can be hundreds of dollars. A three-night stay in a hospital may cost tens of thousands of dollars, and few people can afford to pay those fees out of pocket. This is part of the reason why health insurance coverage is so important.
Health insurance is a way of managing risk. Individuals sign up for a policy and then share the risk of needing healthcare with a group of others, known as enrollees. The health insurance provider charges a premium based on the overall group risk, banking on the idea that not everyone who is paying the premium is going to need expensive healthcare.
Those who do require care have their fees paid out of the total ‘pot’ paid by all other users. Health insurance plans that are offered on the Marketplace and are covered by the Affordable Care Act are required to include ten key elements of care:
- Emergency services
- Laboratory tests
- Hospital stays
- Outpatient care
- Pediatric care, including oral and vision care
- Maternity and newborn care
- Preventative care and wellness services
- Rehabilitation services
- Prescription drugs
- Mental health and substance abuse treatments
Most plans won’t cover the full cost of healthcare, though. There will be some out-of-pocket expenses, or co-pays, that policyholders are required to pay.
What Is a Co-Pay?
A co-pay is a set amount that a person has to pay towards their healthcare. This amount is a flat fee charged by a doctor or specialist. The patient pays that fee to access medical care, and the insurance company is billed for the rest.
Co-pays are used by commercial, employer and marketplace health insurance policies. There are different rules for Medicare and Medicaid, which have their own government-set deductibles and coinsurance rules.
Co-Pays vs Deductibles
Co-pays and deductibles are often used alongside one another in health insurance plans. They both involve the insured person making a payment, but differ in the amount of payment and how often the payment is made.
- A deductible is the total amount that an insured person must pay out of their own pocket before their insurance begins at all. Usually, deductibles must be met on an annual basis.
- A co-pay is a smaller amount that an insured person pays out each time they see a health professional.
Some insurance companies apply co-pays immediately, while others do not start taking co-pays into account until the deductible amount has been reached.
Co-Pays vs Coinsurance
Another consideration is coinsurance. Coinsurance refers to the percentage of the cost of treatment that the insured person has to pay for themselves.
For example, suppose a person needs a treatment that costs $1,000, and the coinsurance is 20%. If they haven’t met their deductible for the year, the patient would have to pay the whole amount. If they have met the deductible, then all they would need to pay is the coinsurance of $200. The insurance provider would pay the remaining $800.
When Might a Co-Pay Be Owed?
Co-pays are used for most office visits and related medical care, including:
- Primary care physicians
- Specialist doctor visits
- Mental health services
- Drug rehab services
- Urgent care
- Prescription drugs
- Emergency room visits
- Ambulance transportation
The amount charged for co-pays varies, but it is usually fairly low. Most providers will have a schedule of co-pay fees which will differ for individual treatments or services, such as general doctor’s visits, mental health and ER visits.
When to Choose which?
Deciding between a plan with co-pay and one with coinsurance can be tricky. The answer depends on the monthly premiums, how often the person expects to use medical services, and the type of medical services that they expect to use.
It’s a good idea to look at the list of fees for common services, and consider the medical services that the household accesses frequently.
For example, comparing two insurance providers, co-pays for a visit to a specialist could be $70, while coinsurance may bring that fee down to $50, making coinsurance a good choice for someone who expects to visit a specialist fairly frequently for a preexisting condition.
However, comparing the same two insurance companies, lab work could be $200 under coinsurance, but just $50 with a co-pay.
Fees all depend on the deals the insurance company has negotiated with the providers they work with.
Many providers offer multiple plans in different tiers, with higher-premium plans offering lower co-pays or lower coinsurance costs. Someone who is young, healthy, has no preexisting conditions and does not have a high-risk job or any high-risk hobbies might be happy with a lower monthly premium and higher fees for the occasions they access healthcare.
By contrast, an older person or someone who expects to need maternity care may prefer higher premiums, since they may be going to the doctor more often and accessing healthcare services. Despite the higher monthly cost, such a person may well end up saving money each year, since high-premium plans typically come with lower co-pays and coinsurance.
It’s well worth looking at past medical expenses and comparing the fees for them with fee schedules for other insurance policies. It’s hard to predict what medical services may be required in the future, but assuming a person’s overall health service use remains steady, changing from coinsurance to co-pay or vice versa could produce significant savings.
How to Offset the Cost of Co-Pays
If you expect to make use of medical services fairly regularly, you can prepare for the cost of co-pays and reduce the impact they have on your bank account by saving pre-tax funds into a health savings account (HSA), health reimbursement account (HRA) or flexible savings account (FSA).
These funds allow people to set aside money for healthcare costs, without paying tax on it, making it easier to cover costs when they arise.
The only way to reduce the fees is to change your plan, and that’s not always an option. Those who are in employment should check the plans offered at their workplace, because the purchasing power of an employer may mean that they are able to get better deals than an individual.
If you need to take out a new health insurance policy, use our comparison tool to see the options available to you. We may be able to help you save a lot of money while accessing the care you need from the network you prefer.