Health Insurance Terms in Action
Below is an example of a real-life scenario using common health insurance terms to help you better understand how health insurance functions.
Scenario:
James breaks his leg playing soccer and needs several types of medical care. Fortunately, James has health insurance to help cover the cost of his care, so he doesn’t have to pay the full bill on his own. His health insurance plan determines how much he pays and how much his insurance covers.
James’s plan includes:
- A $250 monthly premium
- An annual $500 deductible
- $25 copay for in-network specialists
- $75 copay for out-of-network specialists
- 20% coinsurance after the deductible
- A $2,000 out-of-pocket maximum
Step 1: The ER
James goes to an in-network ER, which costs $1,000. Since James hasn’t met his deductible, he pays the first $500 himself. After the deductible is met, the remaining $500 is subject to 20% coinsurance, meaning James pays 20% of that amount.
Amount paid by James:
$500 (deductible)
+ $100 (20% of the remaining $500)
= $600
Step 2: Seeing a Specialist
James is referred to an orthopedic specialist who is in-network. Under James's plan, his in-network specialist visit has a $25 copay.
Why does staying in-network matter?
Out-of-network care may have different deductibles, copayments or coinsurance and can cost significantly more. Check your plan's benefits before seeing an out-of-network provider.
Amount paid by James:
$25 (copayment)
Step 3: Physical Therapy
James needs 10 physical therapy sessions. He chooses an in-network physical therapist. Each session costs $150. Since James has already met his deductible, he pays 20% coinsurance, which is $30 per session.
Amount paid by James:
$300 (coinsurance for 10 sessions)
Summary:
James’s Total Out-Of-Pocket Cost:
$600 (ER) + $25 (specialist) + $300 (therapy) = $925
James has paid $925 toward his $2,000 out-of-pocket maximum so far this year. The out-of-pocket maximum is the most James will ever have to pay for eligible care during a given plan year. If he reaches $2,000 in eligible out-of-pocket costs, his insurance will cover 100% of additional covered expenses for the rest of the year. Note that the monthly premium does not count towards the out-of-pocket maximum.