Four terms do all the work in a health plan, and most explanations of them are circular. Here they are with numbers attached.
Imagine a plan with a $3,000 deductible, a $40 copay for office visits, 20% co-insurance, and a $6,000 out-of-pocket maximum. Here is how a year plays out.
The deductible
This is what you pay before the plan starts sharing costs. In our example, the first $3,000 of covered care is yours. If you break an arm in February and the bill is $2,400, you pay all of it, and your remaining deductible for the year is $600.
The copay
A flat fee for a defined service, often available before the deductible is met. If office visits carry a $40 copay, you pay $40 at the desk and the plan handles the rest of that visit — even in January.
Co-insurance
After the deductible is met, you and the plan split costs. At 20% co-insurance, a $10,000 surgery costs you $2,000 and the plan $8,000 — until the out-of-pocket maximum stops the clock.
The out-of-pocket maximum
The ceiling. Once your deductible, copays and co-insurance add up to $6,000 in a plan year, the plan pays 100% of covered in-network care for the rest of that year. This is the number that determines whether a bad year is expensive or catastrophic, and it is the one most people never look at.
One caveat worth knowing: premiums do not count toward the out-of-pocket maximum, and out-of-network care usually does not either.
