Understanding Copays and Deductibles

When selecting a health insurance plan, it can be tricky to determine how to get the right coverage for your needs, while also staying within your budget. Understanding the difference between copays and deductibles can help to manage your health and your finances, so check out the guide below.                  

What’s a deductible?

A deductible refers to the amount of money you pay for healthcare services before your health insurance plan kicks in. For example, if you’re on a medical plan with a $2,000 annual deductible, it means that you are personally responsible for paying the first $2,000 you accrue in healthcare expenses that year. After that initial $2,000 has been paid, your health insurer will begin to pay for all or some of your care.

Some medical services are not subject to a deducible, which means that you will pay less to access these. Many kinds of preventative care, such as vaccinations, flu shots, well-baby visits and so on, are often made available free-of-charge by a health insurer, so you don’t need to cover those costs yourself – regardless or whether or not you’ve hit your annual deductible. 

What’s a copay?

Once you’ve reached your deductible, you might still need to pay some money to access certain healthcare services. This fixed out-of-pocket amount is known as a copay, and it means that you are sharing the cost of care with your insurance provider. For example, you might pay a $20 cost per appointment every time you visit your family practitioner, or $30 to refill a drug prescription.

Copays vary widely depending on what plan you choose. Your insurance provider may charge a copay for doctor appointments related to a specific healthcare concern, but forgo the copay for preventative care including blood tests, cancer screening, or a well-woman visit. Some health insurance plans have no copays at all, but instead fold in costs to other areas of their pricing structure.

Out-of-pocket maximums

Both deductibles and copays count toward your annual out-of-pocket maximum, which means that once you’ve reached a certain figure in both deductibles and copays, your insurance will cover 100% of medical costs without you needing to share those expenses. In other words, a health insurance plan with a low out-of-pocket maximum will mean less money spent in deductibles and copays – but you could end up paying more in monthly premiums. 

What to consider when choosing a plan?

Plans with a higher deductible and more copays tend to have a lower monthly or annual premium, so if you’re in good health and don’t foresee any major medical events in the near future, it could be worth it to choose a plan that requires a bigger deductible.

On the other hand, if you have a chronic medical condition or you’re concerned about accidents and injuries – from sports or outdoor activities, for example – it might be a good idea to consider a plan that costs more in premiums but has a lower deductible or out-of-pocket maximum. That way, insurance payments will kick in sooner and you won’t spend as much in copays.

Next steps

It can take time to understand the ins and outs of a health insurance plan. After you get a handle on the definition of terms like copays and deductibles, make a list of your healthcare needs in the past few years and what you expect to be coming up soon, for you and your family. While it’s impossible to predict what your medical needs will look like, doing this exercise will help you to put more thought into what kind of healthcare coverage might make the most sense for your healthcare requirements and your budget.