[Editor’s note: With significant portions of the Affordable Care Act to be implemented starting on Jan. 1, 2014, the Kokomo Tribune is running a series that explores how the personal responsibility mandate, the expansion of Medicaid and the new health exchanges will affect consumers.]
Q: What is the difference between a premium, deductible, co-pay and out-of-pocket maximum? If I pay premiums, a deductible and copays for the year, do those all apply to the out-of-pocket maximum? What happens when that amount is reached?
A: All of this terminology has been part of health insurance coverage for many years and details the amount a person pays for health insurance.
“The premium is the annual cost of health care insurance,” said Craig Dunn, a financial planner for Liberty Financial.
Premiums may be either deducted from a person’s paycheck or mailed on a monthly basis to an insurance company.
“The deductible is what you must pay each year before your insurance pays anything,” Dunn said. “The co-pay is the cost of medical services that you must share with the insurance company until your maximum out-of-pocket costs have been met.”
The out-of-pocket maximum is the limit established that includes all cost-sharing items, meaning deductibles, co-insurance and co-payments, Jennifer Lyons, a financial planner with Bucheri McCarty & Metz LLP, said.
“Premiums are not included in the out-of-pocket maximum,” she said. “Once the out-of-pocket maximum is reached, insurance will cover all additional qualified medical expenses.”
The monthly premium is directly related to the deductible, co-pay and out-of-pocket expenditures. Generally, the lower the monthly premium, the higher the other consumer costs and vice versa. The Affordable Care Act limits out-of-pocket maximums to $6,350 for an individual and $12,700 for a family plan. Those limits do not apply to grandfathered plans.
Readers can submit their questions on the Affordable Care Act to Enterprise Editor Ken de la Bastide at firstname.lastname@example.org or by mailing them to Kokomo Tribune, care of Ken de la Bastide, 300 North Union St., Kokomo, IN, 46901.