Health Insurance: Understanding Deductibles and Coinsurance



hello this is David Hawksworth the insurance coach and today I want to wanted to shoot a video explaining what a deductible and coinsurance is on a health insurance plan so this is a health insurance video an educational video want to let you know what a deductible is and want to co in what coinsurance is on health plans and also in addition to that kind of a bonus is I want to explain how the total protection plan which I'll get to at the end of the video how that supplements and interacts with the health insurance plan so what I have here I'm going to have a series of illustrations just going to try to this it helps to have these things kind of in a chart form to see what I'm talking about but before I get to the chart I wanted to talk about just kind of the the basic idea the structure of a health plan on theirs and I'll get to the how these are defined in a minute but there's a deductible and the coinsurance and they're very kind of there to cut it together there they basically tied together in a health plan and basically you're you know the first thing you need to know about the deductible and the coinsurance with the health plan is what what they what applies to them okay because different health plans have different health care services that apply to the deductible and coinsurance okay so for example the most common type of health plan out there is a copay plan all right and on a copay plan the copay the co-pays apply to minor services things like doctor's visits and urgent care and prescriptions for example those are what the co-pays apply to and on copay plans the those minor services that that have co-pays associated with them do not apply to the deductible and coinsurance they're actually outside of the deductible and coinsurance structure okay now so so the in in those cases of the copay plan the services that do apply to the deductible and coinsurance our major services things like hospitalizations and surgeries and major diagnostic exams like cat scans and MRIs as well as emergency room those are kind of the biggies okay so these are the you know major services more expensive services that's where your deductible and coinsurance come into play those are the services that apply to a deductible and coinsurance on a copay plan now on the other hand other types of health plans out there are structured differently for example what are called typically called traditional health plans and also HSA plans health savings account plans their structure is that every service every kind of healthcare service whether it's major or minor applies to your deductible in your coinsurance so whether it's a doctor's visit whether it's you know prescription typically also the major services like hospitalizations and surgeries and so forth all those the cost you're going to pay the full cost for that service and all of it is going to apply to your deductible and then your coinsurance okay so those are this kind of the two big categories your your copay plans where they're sort of separated the services are separated some apply to the deductible and coinsurance some don't and then your your other type of plans your traditional and your HSA where all services apply to that okay so it's kind of the the general you know layout of of the health plans I want to get that across before I really got into this so first of all you know to explain starting right in here just your deductible in your coinsurance okay I'm going to start with the deductible because that's really where the health plan starts okay so whatever services apply to the deductible whatever they are on health plan that's what you need to find out first okay but you your deductible is the amount of money that you as the consumer are going are agreeing with the insurance company to pay out of pocket from the first dollar and before the insurance carrier is going to pick up any of the costs and again this is only on services that are that apply to your deductible and coinsurance okay so on a copay plan this doesn't apply to doctor's visits urgent care prescriptions for example okay so in this particular illustration this is just a really simple generic you know I wanted to keep it simple here health plan one health plan two both are $1,000 deductibles okay this is considered a low deductible plan okay uh so that's your you're saying I'm going to agree to pay the first $1,000 after the $1,000 is satisfied then we get into the coinsurance now let me point out that statistically in the United States okay we're right now we're in May of 2013 okay statistically United States it is very rare actually for people to satisfy this whole deductible even at $1,000 in any given year this is by the way per calendar year $1,000 per calendar year okay so you know somewhere between 80 and 90 percent of consumers do not satisfy their deductible even at this low level of $1,000 okay so if you let's say you take you know a ten year period of time you you know if you're an average person especially if you're a healthy person even more so you are only going to actually use this whole $1,000 you're actually not only going to have services you know healthcare services that you know actually amount to your deductible amount once every you know ten years maybe once every eight years or something like that so it's not a very frequent so you know somewhere between eighty nine percent do not hit it on I know in any given me any given calendar year okay so it's pretty rare you know what ten to twenty percent of time you might actually you know hit your deductible okay if that makes any sense okay so but anyway once once you do satisfy the deductible one thousand dollars in this case then that's when you get into the realm of coinsurance okay coinsurance the reason it's called that the co refers to you are are sharing can you any insurance company are sharing the cost together after the deductible your cost first totally yours right here with a deductible then you are sharing with the insurance company and it's expressed as a split a percentage split in this particular illustration I put the two most common that you see on the market okay 80/20 the first number is always the insurance company's responsibility eighty percent so the insurance company is going to pay eighty percent you are going to pay twenty percent and this is the other most common one seventy percent thirty percent there are other examples there are sixty forty s out there there are ninety tens out there you also even have 100 zeros out there which is for example the most common version of that is HSAs those are usually 100 zeros okay so um anyway so and then they'll also say here's the maximum that you the consumer will pay for coinsurance in any given year so in this case this is just an example it doesn't mean at all 80 20s or 3,000 but this is just an example kind of a common one in this case you're going to you put the potential maximum you could pay in any given calendar year for coinsurance in this case the e 20 case is three thousand dollars okay so your your maximum out-of-pocket for health plan one is the one thousand dollar deductible plus the three thousand dollar coinsurance okay which is this equals this the maximum total out-of-pocket exposure being four thousand dollars again let me point out if this was a copay plan the minor services doctor's visits or CAIR prescriptions are outside of deductible and coinsurance and so this maximum total out-of-pocket exposure does not include the co-pays for those minor services or any potential deductible sometimes very commonly nowadays prescription plans on these plan on these copay plans have a separate deductible outside of the normal to ductal okay so anyway that that's that's how that works the other example here is the seventy third example the maximum for coinsurance is five thousand plus the one thousand equals six thousand okay so this is this is the Morissette of pocket you could have in any given year for services covered by the deductible and coinsurance okay and then here's a common premium four hundred fifty a month this is of course the premium is based on your age your tobacco status your sex where you live in the in the world etc so these are just generic examples do not take this to mean anything specific okay so anyway four hundred fifty dollars a month four dollars a month these are kind of you know these are kind of your copay plan type of premiums for this setup in general okay they're obviously going to vary depending a lot of factors okay so this that's kind of the you know illustration and kind of the explanation here of the deductible coinsurance now I want to move on and kind of expand this a little bit I'm adding in here health plan three health plan for now our deductible the only thing that changed here is our deductible went up to $2,500 okay so I just want to illustrate going up a little bit your deductible these are the same okay your maximum total out-of-pocket exposure which is the coinsurance plus the deductible is obviously higher here than they are here but here's what happens to your premium obviously you're taking on more of the responsibility here more out-of-pocket exposure so now your premiums are lower okay just want to point that out I'm going to get to a point here I'm going to make a point here in a minute okay I'm going to expand it even further same idea higher deductible now it's 5,000 more out-of-pocket exposure lower premiums okay we're starting to get down to almost half of what these premiums were up here okay so the you know you start to get these higher deductibles and higher out-of-pocket exposures and sometimes people get scared of that and you know that's reasonable but in a minute I'll explain why this might be something that might interest you the premium is getting lower I'm going to show it one more okay getting all the way up to the $10,000 deductible and even higher out-of-pocket exposure okay and even lower premium so now you're definitely under half what you started with up here with a thousand why am i pointing this out okay here's the scoop if you are a healthy person or if you're even an average person with your health you are not really any more likely statistically practically speaking to satisfy your deductible add a thousand dollars and start using the insurance okay coinsurance and so forth then you all write a five thousand or ten thousand dollar deductible for example okay so in other words let's say you have a thousand dollar deductible versus a ten thousand dollar deductible here you're paying let's say you're doing me 20 you're paying 450 if you're doing a ten thousand with the 80/20 you're doing two hundred and thirty okay so you know pretty much right around half the price okay so you're saving you know 220 a month okay by going up to your $10,000 deductible nine years out of ten or eight years out of ten you're not going to you know use these health care services so that you have to hit your deductible here or here okay if that makes any sense so I not consider at least leveraging your good health and saving premium here because practically speaking you're not going to actually experience this deductible coinsurance world in most given calendar years you know one or two times one or two years out of ten year of a ten year period you you may get into this that you you know probably statistically you will get into this one one or two years out of every ten years and then you will be dealing with these higher costs okay if you increase your deductible okay but in most years you'd be sick you know you'd be saving a lot of money per month and you can imagine over a ten year period you know what kind of savings you're looking at if you're looking at a couple hundred dollars month misses by the way this is a per person amount if you had a family these are obviously get multiplied by you know not necessarily exactly multiplication but they're you know the premiums are going to be even higher as my point for a family and the difference between you know the high deductible and the low deductible is going to be even greater so if you have a family it's even more so okay so um my point is to consider doing a high deductible is a good strategy financially um for most people now if you're a chronically ill person this is probably not a good idea you probably do want a lower deductible because you're probably going to be utilizing the services and needing the financial protection okay now let me I'm by the way one quick thing I forgot to mention earlier uh once you hit this maximum amount here on coinsurance after that so you've paid your whole deductible you've met your coinsurance max this is you know if you're having a bad healthier okay after you hit the maximum it's probably obvious but after that the insurance company pays 100% okay so that's not work so you're paying all this you're paying a split here and then after the coinsurance you're the insurance company is paying a hundred percent you're paying zero okay all right so I wanted to get to that before I moved on to this last thing now the last thing I promised I would talk to you about is the total protection plan okay the total protection plan and what the total protection plan is is a way to supplement your health plan in order to give you increased coverage and increased financial protection from the coverage and still saving money over a low deductible plan okay so let's take a look at that structure okay so we're going to look at this one first I went back to just the 1,000 through the 5,000 deductibles here okay so right here the total protection plan what it consists of it's supplemental coverage in the form of accident coverage and critical illness coverage okay ah statistically in the United States when people are utilizing major services on a health plan again things like hospitalizations surgeries major major diagnostic exams and emergency room is 83 percent of time it's because of either an accidental injury or acrylic illness okay accidental injury of any time okay injury at the home injury at work injury on vacation injury doing recreation car accident whatever okay any kind of injury from an accident critical illness is you know being diagnosed with a major life altering illness like internal cancer heart attack stroke end-stage renal failure aka kidney failure Alzheimer's paralysis blindness things like this okay so anyway so by having by buying supplemental coverage accident and critical illness you're going to protect yourself almost all the time eighty-three percent of times statistically from having the out-of-pocket exposure came the concept here is to is to at least match the maximum total out-of-pocket exposure with the coverage okay so in this case this was $8,000 maximum total out-of-pocket exposure here this one was ten thousand so I'm doing a ten thousand dollar accident policy and a ten thousand dollar a critical illness policy okay and by the way this is per occurrence ten thousand dollars per occurrence and this is ten thousand dollars per diagnosis okay all right uh these are these are kajan Eric examples of pricing just like the health plan premiums were okay so the accident is $40 a month for ten thousand the critical illness is about $30 a month for ten thousand again these babies vary based on age based on tobacco status for the critical illness etc okay so if you if you add these in 30 plus 40 is 70 so if you're adding 70 to this these numbers here your total premium for the whole thing health plan premium plus accident plus critical illness your total premium you're looking at 345 to 95 in this illustration okay and you can see that these numbers here are lower than these health plan premiums just by themselves through even lower than these okay and frankly by having total protection right here with the accident plus a critical illness plus the health plan the this scenario right here you have a better overall coverage better overall coverage than you do up here with a one thousand dollar deductible health plan by itself okay and still a lower premium so you're getting better financial coverage at a lower cost so this what this does what the total protection plan does is it takes the scariness out of the high out-of-pocket exposure from a high deductible health plan okay that's what this does so it provided it provides you a way of getting affordable coverage more affordable coverage than you probably have now okay and a and still having you know frankly increasing your coverage having better coverage and you have now okay and one last slide here this is the same thing but now I've added back in the ten thousand dollar deductible health plans which have these you know thirteen thousand dollars out-of-pocket exposure potentially fifteen thousand dollars maximum out-of-pocket exposure here so now I bumped the accident up and the critical illness up to fifteen thousand dollars each the accident doesn't go a lot much forty two dollars a month so instead of only forty quick aloneness goes up about ten bucks here so you're you're at you know forty plus forty to eighty two dollars plus these premiums here so here's your total premiums 312 two sixty two less expensive than this one and way less expensive than this one again superior coverage this even though the high deductible even though there's a high out five exposure the overall coverage here or here is superior than this low deductible health plan by itself and they all have lower premiums than these guys up here okay so hopefully this makes sense to you this is a strategy that I recommend to many of my clients frankly most of my clients because most of my clients are either at least average health health if not healthier than that and so it's just a way to leverage your good health to take advantage of the the savings of a high deductible plan and then still protecting yourself from your you know the major financial hardship here protecting yourself from that maximum out-of-pocket exposure by supplementing with the accident critical illness so that most of the time you're actually providing yourself with better coverage than you are with a low deductible health plan okay and this was again hopefully this was helpful to you to understand a health plan structure specifically the deductible and the coinsurance and how they work especially with the coinsurance because it's probably the least understood aspect of health plans out there in my experience and then also how the total protection and can supplement the health plan and help you to get better coverage at a lower cost alright until next time this is david Hawksworth the insurance coach thank you very much bye-bye

18 Comments

  1. This is awesome! Thank you David! quick question, is 'premium' and 'Total Protection plan' separate plans. Meaning, Am I supposed to shop for both separately?

  2. great explanation, thank you so much!

  3. Thank you! You gave me the knowledge to make a sound decision on my medical coverage.

  4. So standard deductible and coinsurance are not applicable for Total Protection plans?
    If so, then what kind of illness' are covered by deductibles and coinsurance?

  5. are copay plans the same as fee-for-service or indemnity plans?

  6. thanks so much for this video. I finally understand !!

  7. What makes understanding this difficult is that there are 2 'max'es- one is called max, the other is called 'max exposure'.

  8. question- Does the "max" include the premium?

  9. why do you call doctors' visits, specialists' visits, prescriptions, and tests, "minor services". Isn't this what makes up 99% of most medical fees?

  10. Mr. Hoxworth! Great presentation in this video! Can you provide me with a link to download your illustrated spreadsheet in this video for my informational purposes only? For 2016 through healthcare.gov, I have the same plan as last year thru BC/BS of Florida with 100% of the premium being paid thru my advanced tax credits known as subsidies. I have $0 Deductible, 30% Co-Insurance, Maximum Out of Pocket Max at $950. I also have Co-Pays attached to minor office visits and the cutomary $0 out of pocket for preventative care. I am 53 year old male with tons of health conditions. So, overall, I would say Total Care Protection in my instance would be $1,000 each if I wanted the accident and critical care supplements. We all know at the end of each calendar year, we have to reconcile that tax credit with the IRS on our tax return and hope for the best.

  11. David…I just got moved to another insurance provider and this video not only took away alot of my fears also it guided me for future plan choices

  12. Extremely helpful. Thank you so much!!

  13. Thank you so much for the detailed and clear introduction and explanation.  It is really useful for a new comer to the States who knows nothing at all about the insurance:))))

  14. Aloha my Friend,
    Great video! I really appreciate to see your videos and am happy to see them helping people live a happier healthier life. Thank you and keep up the great work!
    I have many yoga, meditation and health videos on my channel if you want to check them out. Feel free to subscribe and leave a comment to let me know any video requests you can think of and I will try to make videos to respond to your request.

    Keep up the greatness!
    I look forward to hearing from you.
    Blessings and Namaste,
    Dashama

  15. How they have presented the information is easy to follow, realistic and definitely simple.

  16. Best video for shopping health insurance. Watch ALL of it because the last two minutes will make a difference in how much you are going to pay for health insurance by leveraging your good health. Thank you David. 

  17. Thank you, I really liked this clip. I look forward to others from you. Feel free to contact me to discuss more

  18. If a person with health plan 8 + total protection plan were to get into an accident costing $40,000, how much would they have to spend out of pocket?

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