It’s been quite awhile since I wrote the post Health Insurance: Part 1 – Deductibles. In that post I discussed the general idea of deductibles and how they work. In this post, I will be discussing co-insurance and stop-loss provisions and what they mean to you and your wallet.
Once your deductible has been met, many health insurance companies will pay for all of your medical expenses. On the other hand, many companies will pay for medical costs on a co-insurance basis. Many co-insurance provisions are stated in a percentage format such as 80/20, 70/30, etc. The first number is what the insurance company will pay after the deductible and the second number is what you will be responsible for. You will continue to pay that percentage (after the deductible) until you reach a stop-loss provision or out-of-pocket maximum.
The stop-loss provision is the point where the insurance company will begin to pay 100% of a claim. Once your out-of-pocket expenses reach that limit, the insurance company will pay the rest. Without a stop-loss provision, you could be responsible for the co-insurance of an indefinite amount. For example, if you have medical bills of $500,000, your co-insurance clause is 80/20 and you do not have a stop-loss provision, you would be responsible for $100,000 of that particular bill. Make sure that your health insurance has a stop-loss provision for this reason! The higher the stop-loss, the lower the premium.
Let’s look at a comprehensive example for clarification:
Assume that John has an insurance policy with a $1,000 deductible, 80/20 co-insurance and a $5,000 stop-loss provision. Let’s also assume he has a hospital bill for $2,000. How much is he responsible for?
He is responsible for the first $1,000 of the bill due to the deductible. He is then responsible for 20% of the remaining $1,000 bill or $200. His total out-of-pocket expenses for this bill are $1,200.
Now let’s assume he has another bill for $25,000 (due to a surgery) in the same year. Since he has already paid his deductible, he will go straight to the co-insurance. He will be responsible for 20% of the bill or $5,000. However, he has a stop-loss provision of $5,000. Since he already paid $1,200 from a previous bill, he will only be responsible for $3,800 of the surgery bill. This is due to having met his $5,000 stop-loss. The insurance company will now pay any additional bills that come in during the same calendar year. Keep in mind that these provisions and deductibles are on a yearly basis and reset each year. So in this example, if John has the same bills next year, he will have to pay the same amounts again.