What is the difference between a premium, a co-pay and and out-of-pocket expense?

Personal Finance, Creating Healthy Communities July 15, 2013 Print Friendly and PDF

Health Insurance Plan costs can be broken into two categories: cost of having the plan and costs of using the plan. In order to purchase and continue to have health insurance coverage, you have to pay a premium. The premium is paid on a regular basis such as a certain amount monthly, quarterly or yearly. It is typical that when purchased through your employer, the plan premium is deducted from each paycheck. Basically, the premium buys you the health insurance plan.

You also have to pay certain fees when you use the health insurance plan. You often have to pay a portion of the charges for doctor visits, lab work, hospitals, prescriptions and/or other health related services and providers. A co-pay is a fixed dollar amount (a partial payment) for a health care expense that is covered by your plan. You may also have co-insurance in your plan. Unlike a co-pay which is a fixed dollar amount, the coinsurance amount you pay is based on a percentage.  It is a percent you have to pay for health care expenses that are covered under your health insurance plan in addition to your fixed dollar co-pay. An out-of-pocket expense is any part of a health care expense (doctor visits, equipment, medicine, etc.) that is not covered by your health insurance (either fully or partly) that you are responsible for paying. Co-pays and coinsurance are both considered out-of-pocket expenses.

The Department of Labor has a Glossary of Health Coverage and Medical Terms that represents well the relationship between all of these types of expenses.

 

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This work is supported by the USDA National Institute of Food and Agriculture, New Technologies for Ag Extension project.