Health care spending is on the rise in the United States. By 2027, national medical spending is expected to increase to $6 trillion. In fact, health care is growing faster than Gross Domestic Product and is larger than the federal government’s annual budget.
Insurance companies do not have the means to absorb this increase. As a result, premiums are expected to rise by up to 15% in 2022.
Cost sharing is a critical piece of the health insurance business model. Read on to learn everything you need to know about this term. Explore topics such as cost sharing definition and patient responsibilities when receiving medical care.
What Is Cost Sharing?
Sharing costs refer to a payment arrangement between insurance companies and patients. The cost of medical care is shared between the two parties.
Sharing costs extends beyond your monthly or biweekly premiums. Many people are caught off guard by their patient responsibility after seeking medical attention.
There are a few different ways that insurance companies structuring a sharing arrangement. This structure is transparent and made available to insurance shoppers before they select a plan.
How Are Costs Shared?
Deductibles are one of the most common methods that insurance companies and patients share in medical costs. The average deductible for an individual is over $1,600.
A deductible is a monetary threshold that the patient needs to cross in order for expense sharing to begin. Up until this threshold is reached, the patient pays for medical expenses out-of-pocket. They do have access to the service rates agreed upon by the insurance company and medical providers.
Some young and healthy patients sign up for high-deductible plans. They knowingly accept a plan with a high deductible to lower their monthly premium payments.
Copayments are another way that insurance companies share costs with patients. When you arrive at a medical provider, you pay a set amount prior to seeing the doctor.
This is called a copayment and varies depending on the plan type and doctor. The copayment for a specialist is typically higher than a primary care physician.
Lastly, coinsurance is the final way that insurance companies share costs. Coinsurance is a percentage ratio for the insurance company and patient.
For example, your insurance plan may have a 20% coinsurance rate for in-network providers. This means that the insurance company pays 80% of the allowable costs. You are responsible for the remaining 20%.
Typically, coinsurance rates increase for out-of-network doctors. You will be responsible for a larger percentage of the cost if you see an out-of-network doctor. It is also important to note that coinsurance only kicks in after you reach the plan’s deductible.
How to Manage Cost Sharing?
Sharing costs is normal in health care and many other industries. The best way to plan for it is to research the plan before signing up.
It is critical to look beyond the monthly premium. Instead, make considerations for copayments, coinsurance, and deductibles. If you want to learn more about cost sharing, contact us today to speak with a specialist.