Let’s pull together all that we learned in the “Plain English Definitions to Confusing Health Insurance Terms” to understand how much you pay for healthcare each year. Here is the equation:
Premium + Deductible + Copay + Coinsurance up to Out of Pocket Maximum + Prescription Costs = Yearly Healthcare Costs
The important thing to remember about this equation is that the higher the deductible the lower your out of pocket maximum will be and vice versa.
Learn by Example
Let’s pretend that you have an accident where you accumulate $60,000 in healthcare expenses. Let’s say that you have the following health insurance plan:
- Premium: $75/pay period with two pay periods per month
- Deductible: $1,500
- Coinsurance: After your deductible, you are required to pay 80% of inpatient/outpatient services
- Copays: $250 for an ER visit and $60 total for prescriptions
- Out of Pocket Maximum: $3.700
In this example, you pay $1,800 (pre tax) in premiums regardless of the healthcare services you use. You will then pay $1,500 for the any inpatient and outpatient services before your health insurance kicks in. You also paid the $310 in copays. You then need to pay 20% of any remaining inpatient/outpatient services until you reach your out of pocket maximum. This would be $11,700, but your out of pocket maximum is $3,700, and you already paid $1,500 of that with your deductible leaving a balance of $2,200
$1,800 + $1,500 + 310 + $2200 = $5,810
If this accident is your one and only health event, outside of preventative wellness that is covered 100% by health insurance, then you will have paid $5,750 total for healthcare in the year. This is typically not the case. Oftentimes you have multiple copays throughout the year to calculate. However, you can use this equation to understand how much you spent for care this year and to estimate what is ahead in the year that follows.