Charges credited toward deductible are calculated on an annual basis. If network providers are used, the charges are based on the preferred provider organization (PPO) contracted rate. If non-network providers are used, then these charges are credited to a separate non-network deductible, which is typically much higher than the policy’s in-network deductible. At the beginning of each calendar year deductible returns to zero, and charges begin to be credited towards deductible based on the date service is provided. If deductible is not met by the end of the calendar year, the amount credited at year-end does not carry over to the next year.
As was stated previously, the probability of reaching deductible in any given year is unlikely. In fact a large Texas carrier informed Stateside that 87% of all of their policy holders do not incur over $2,000 in claims in any given year. However, if deductible is met, all charges for approved services from that point are subject to the co-insurance benefits. The co-insurance benefit means exactly what the term implies — both the health insurance carrier and policy holder share the cost of services received. The sharing percentage varies by policy, but typically the percentage arrangement is either 75%/25%, 80%/20%, 85%/15%, 90%/10%, or 100%/0%. The higher percentage refers to the insurance carrier’s financial responsibility. Major medical policies will include a co-insurance maximum or stop loss which is the maximum amount a policy holder will pay at the co-insurance percentage. The co-insurance maximum is typically either $3,000 or $5,000 for each individual.
The easiest way to understand how co-insurance works is to look at what happens to each dollar of service received above deductible. Let us look at a policy with a $2,500 deductible and a co-insurance rate of 75%/25% with a $3,000 out-of-pocket maximum for the policy holder. After the $2,500 deductible is met, the policy holder will pay 25 cents and the insurance carrier will pay 75 cents of claims until the policy holder reaches the co-insurance maximum out-of-pocket of $3,000. The policy holder will have paid $3,000, which represents 25% of the claims above the deductible, and the insurance carrier will have paid $9,000 or 75%. Total claims will have reached $14,500 ($2,500 deductible, $3,000 from the policy holder, and $9,000 from the insurance carrier), at which time the carrier will pay 100%.
Co-insurance on the surface appears to be a complicated arrangement, but in reality it is a very simple and straightforward practice. Texas health insurance policies are based on who takes responsibility for risk. The risk associated for each dollar incurred up to deductible is assigned to the policy holder. Each dollar incurred from deductible to the co-insurance maximum is shared, with the insurance carrier bearing more of the risk as reflected by the higher co-insurance percentage. Once stop loss or the co-insurance maximum is reached, the insurance carrier assumes all of the risks, since 100% of the claims are paid by the carrier.
by Tim Jarvis