Individual and Family
Cost Sharing: How Does Health Insurance Work?
Published on April 12, 2018
How does health insurance work?
Individual health insurance may seem a bit confusing to get a handle on.
- What do all the numbers mean?
- How do you make payments?
- How much money are you really saving by purchasing an individual health insurance plan?
The basic idea behind health insurance is that you pay a monthly premium in order to have health insurance for when you do get sick, or need some sort of medical service. Health insurance should allow you to have access to medical care, and help you pay for these services provided by practitioners such as doctors, or institutions like hospitals.
Cost sharing is a major element of your typical individual health insurance plan, and it refers to the costs split between you and your health insurance company.
What is cost sharing?
Cost sharing is the concept of sharing medical costs, some of which you pay out of pocket and some which your health insurance company covers.
Cost sharing means that you will not generally be paying for all of your covered medical expenses on your own, and that your individual health insurance plan may help you with these incurred expenses. Think of cost sharing as a product you’re buying with health insurance—you pay a monthly premium in order to have the benefit of cost sharing when you do incur medical expenses.
Keep in mind, though, that your health insurance plan might not cover every doctor visit or medical service. If you get a service that’s not covered, then instead of paying a cost-sharing amount (like a copayment), you may have to pay the entire amount.
At the same time, your health insurance may offer some services that may not involve cost sharing at all. For example, many individual health insurance plans offer flu shots every year, free of charge.
What payments does cost sharing apply to?
Let’s look at some of the terms you’ll come across with your health insurance plan, and how they relate to cost sharing:
- Deductible: This is a cost that you need to meet before your insurance kicks in, and starts splitting costs with you. So if you have a $2,000 deductible, you’ll have to spend $2,000 on covered services yourself before insurance kicks in. Essentially, this is a portion of cost sharing that you shoulder on your own.
- Copayments: Copayments are flat fees set by the insurance company for certain covered services or products. Your insurance company may have a plan that says your copayment for a routine doctor’s office visit is $20 and a certain prescription you need has a copayment of $5.
- Coinsurance: The biggest difference between coinsurance and copayments is how the cost sharing is done. In the case of coinsurance, the cost is in the form of a percentage. So if your individual health insurance plan requires a 20% coinsurance payment, that means you pay 20% of the bill, and your insurance company pays 80%.
And in almost all cases, cost sharing does not refer to:
- Your premium: The monthly cost you pay to have insurance. Whether you meet your deductible or not, the insurance company doesn’t typically share this cost. The premium may change every year.
- Non-covered services: If you have a procedure done that is not included in your health insurance plan, it’s likely that there will be no cost sharing between you and the insurance company.
- Services provided out-of-network: Your health insurance plan probably has a “network,” which is a set group of physicians and other health-care providers and facilities that the company works with. For example, Health Maintenance Organization (HMO) or Preferred Provider Organization (PPO) plans generally have provider networks. If you go to providers outside your plan’s network, cost sharing may be decreased or not available at all. Check your plan details to see doctors and facilities in your network, and whether or not you have the flexibility to go out of network.
Each plan has its own terms and limitations, so be sure to check the official plan documents to understand how that specific plan works.
How to get a good individual health insurance plan
Now that you understand what cost sharing is, and how it works with most health insurance plans, you can start shopping for an individual health insurance plan that fits your budget and health care needs.
Visit eHealth for free quotes, and access to a quick application process. You can find compare plan quotes, and make a decision that is right for you, without having to leave the comfort of your home.
This website and its contents are for informational purposes only. This article is only for general education. Nothing on this website should ever be used as a substitute for professional medical advice.