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Making sense of health insurance companies’ payment options

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Payment features

The health insurance industry (XLV) offers a wide range of healthcare plans with varied payment options as per insurance enrollees’ requirements.

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Deductible

The deductible is the amount of money that a member has to pay in a calendar year before the insurance company begins to share their medical expenses. For example, with a $4,000 bill, a deductible of $2,000 implies that the member first pays $2,000 and then the insurance company shares the expenses for the remaining $2,000 of the bill. The deductible amount depends on whether the member uses services from healthcare providers that the insurance plan selected. If not, there will be a higher deductible required.

Copayment

Copayment is the amount that members pay when they use a particular type of health service and the insurance company pays the remaining bill. For the above example, for the remaining $2,000 of the bill, the member could pay $500 while the insurance company payed the remaining $1,500.

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Coinsurance

In coinsurance, the member pays a fixed percentage of the cost for a health service and the insurance company pays the rest of the bill. For the above example, the member could pay 20% of the healthcare bill, which is $400. The remaining 80% or $1,600 could be paid by the insurance company.

Out-of-pocket limit

Once the member’s total payment reaches the out-of-pocket limit, the insurance company pays the remaining bill.

Premium

The premium that managed care companies charge for various healthcare plans—companies such as Aetna (AET), Humana (HUM), Cigna (CI), and Anthem (ANTM)—depends on the deductible and copayment/coinsurance. They charge lower premiums for plans with higher deductible and copayment options.

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