How does health insurance work?

Individual health insurance may seem a bit confusing.

• 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?

Health insurance is a contract that requires an insurer to pay some or all of your healthcare costs in exchange for payment of a premium. The financial protection health insurance offers makes it more likely that you will seek medical care from licensed doctors and hospitals when you need it. When you purchase health insurance, you can count on the insurer to help you pay expenses for covered services you receive, such as emergency room visits, doctor’s exams, and hospitalizations.  Cost sharing health insurance works for you to protect your health and your pocketbook.  

What is cost sharing in health insurance?

Cost sharing refers to the arrangement a health plan sets in which a portion of the cost of covered healthcare services is paid by the plan and a portion of the cost is paid by the plan member. The plan member pays his or her portion of the cost out-of-pocket. 

Cost share health insurance means you will not pay for all of your covered medical expenses on your own: your health insurance plan will help you by paying a portion of the cost. The cost share arrangement is part of the benefits you receive when you buy health insurance. 

Exceptions in cost sharing insurance

Your health insurance plan will probably pay its cost-share for most doctor and hospital visits, prescription drugs, wellness care, and medical devices. It probably won’t cover  cosmetic procedures, or off-label drug use, for instance. If you receive a service that’s not covered by the plan, you are responsible to pay the entire charge out-of-pocket. 

On the other hand, your health insurance may offer some services that do not involve cost sharing. For example, many individual health insurance plans offer flu shots every year at no cost to the plan member. 

What out-of-pocket payments are part of cost sharing health insurance?

You will encounter certain terms in health insurance documents that relate specifically to cost sharing. 

• Deductible: The amount you must pay before your health plan pays a portion of the cost of most covered services. For example, assume you purchased health insurance that has an annual deductible of $2,000. You will have to pay out-of-pocket the first $2,000 in charges for covered services before your plan starts paying its portion for covered services you receive. 
• Copayments: Flat fees set by the insurance company for certain covered services. For example, your insurance plan may include a cost-sharing arrangement in which you pay $35 every time you visit a doctor; or $20 dollars each time you have a certain prescription filled. 
• Coinsurance: The percentage of the eligible charge you pay for covered services. For example if your individual health insurance plan features an 80%/20% coinsurance, you pay 20% of the eligible amount (typically after you have paid your deductible) and the insurer pays 80%. 
• Maximum out-of-pocket limit: The cap an insurance plan has on the cumulative amount you pay in deductibles, coinsurance, and copayments during a benefit year. If you reach this limit, the plan will start paying 100% of your eligible healthcare costs for the balance of the benefit year. 

Because cost sharing insurance plans use deductibles, copayments, and coinsurance differently, it’s a good idea to have some familiarity with how cost-share arrangements are commonly structured. 

Cost sharing insurance examples

The chart below illustrates how cost sharing can differ among silver plans that provide the same average value and at approximately the same premium cost, without subsidies. 

Cost-Share	Silver Plan A  – HMO	Silver Plan B – HMO
Deductible	$2,700 (individual)	$6,500 (individual)
Coinsurance	50%	40%
Out-of-Pocket Limit	$8,700	$8,700
Primary Care Doctor Visit	50% after deductible	$25 copay
Specialist Doctor Visit	50% after deductible	$110 copay
Inpatient Hospital Care	50% after deductible	40% after deductible
Outpatient Lab & Xray	50% after deductible	40% after deductible
Outpatient Surgery	50% after deductible	40% after deductible
Prescription Drugs	Generic: $10 copay Preferred Brand: $120 copay	Generic: $10 copay Preferred Brand: $120 copay

If you chose Silver Plan A, you would pay $2,700 (the deductible) before your plan would pay its 50% share of covered medical expenses for most services. Once you reached the maximum out-of-pocket limit of $8,700 by paying your deductible and coinsurance, your plan would pay 100% of eligible expenses for the rest of the benefit year. 

If you chose Silver Plan B, for physician office visits, the most common care most people receive, you would pay a flat fee, or copayment and the plan would pay the balance of the eligible expense. For inpatient and outpatient care, you would pay 40% of the eligible cost for services and the plan would pay 60%. Once you reached the maximum out-of-pocket limit of $8,700 by paying your deductible, coinsurance and copayments, the plan would pay 100% of eligible expenses for the rest of the benefit year. 

You can learn more about these cost sharing arrangements here.  

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. 
• Non-covered services: If you have a procedure done that is not included as a benefit in your health insurance plan, there will be no cost sharing between you and the insurance company. You will be responsible for paying the bill in its entirety. 
• 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) and Preferred Provider Organization (PPO) plans generally have provider networks. If you are enrolled in an HMO plan and receive care from providers outside your plan’s network, cost sharing may be decreased or not available. Check your plan details to see which doctors and healthcare facilities are in your plan’s network and whether or not the plan provides out-of-network benefits for services that are otherwise covered when you use the provider network.

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’s Individual & Family Health Insurance page for free quotes and access to an user-friendly, quick application process. Consult with our licensed insurance agents if you have questions. You can find compare plans, 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.