What Are Health Insurance Co-pays and Deductibles?

Health insurance co-pays and deductibles are an insurance company's way of splitting health care bills between it and the policy holder. To ensure you are getting the coverage you need at a reasonable price, you should know what the limits, maximums and coverage options mean in your health plan, such as how co-pays and deductibles work and how they affect the premium you pay for health insurance.

What's a Co-pay?

• A co-pay is the amount of money you pay out-of-pocket for a covered medical service. Co-pays are typically a flat dollar amount for a doctor's office visit, prescriptions or lab tests. For instance, if your insurance has a $10 co-pay and your doctor charges $50 for an office visit, you pay $10 out of your pocket, and the insurance company pays $40. Typically, there is a co-pay for routine medical services and prescriptions.

What's Co-insurance?

• A variation on a co-pay is co-insurance. This is where you are required to pay a percentage of a medical bill, with the insurance company paying the balance. For instance, if your insurance company offers 80/20 co-insurance, you will pay 20 percent, and the insurance company pays 80 percent of covered medical bills. Health insurance policies may have an annual maximum for co-pays or co-insurance. When you hit the maximum for the year, the insurance company pays all the charges until the year end.

What's a Deductible?

• A deductible is the amount you must pay out-of-pocket for medical services before insurance coverage kicks in. A policy may require that you pay a certain yearly deductible before the insurance covers any medical services, or it may have different deductibles for different types of medical services or for in-network and out-of-network providers. Plans may require that you pay a deductible first and then a co-pay or co-insurance percentage. Health insurance policies generally include deductibles for major medical expenses, such as inpatient surgery.

Balancing Costs and Benefits

• Your co-pays and deductibles are directly linked to the health insurance premiums you pay. You may want a low monthly premium, but you must consider whether you can afford the higher out-of-pocket expenses from higher co-pays and deductibles. For instance, if you choose a high co-pay and/or deductible to keep premiums down but then are hit with a period of poor health and unexpected medical treatments, you could quickly deplete your own resources. On the other hand, if you are in excellent health and rarely use medical services, you may be safe with a high co-pay or deductible in your health policy.