Health Insurance Cost Share–Not The Whole Story

Cost share is an insurance industry term that refers to the money spent by individuals for their own health care

  • within a given health insurance plan (in network only)
  • for the specific benefits defined in that given health insurance plan.

health insurance 101 Cost Share

Cost share represents only a PART of your total health spending costs for any given year and is not equal to your total health spending.cost share is not total health spending

If you have multiple health insurance plans (like a dental or vision plan), then you will have a “cost share” for each of them. If your plan does not cover health benefits that you use, then those costs will add to your total health spending, but not be included in your “cost share”. Understanding this difference between total health spending and “cost share” is vital to seeing the big picture of health spending from the individual American viewpoint rather than HICUP’s (HICUP is a BB Brigade acronym for those who are engaged in the business of health care in the USA).

As a mother, the word “sharing” brings back happy memories of teaching my young (and sometimes reluctant) son the virtue of sharing his toys with friends while they played together. Sharing is considered a good interpersonal trait to possess and brings friends closer. After the friend has left, the toy reverts to the owner—everyone wins! When we use the term “cost sharing”, with whom are we “sharing”?  Will we get the money back after we have “shared” it? The money we expend for health care does not revert to us–ever. We “share” the cost of our health insurance with the payers  in our healthcare system.  Payers are represented by insurance companies, the government, and any other organization which partially reimburses medical providers for the services and products we use (see the figure below).

health insurance cost shareThe Details of Our Health Insurance Cost Share

The health insurance industry’s definition of cost sharing includes the following three components:

  • Deductibles– the amount of money you would pay for covered health care expenses before your plan pays a dime.
  • Copayments– a fixed dollar amount for a health care service paid at the time of service (e.g., $30 per specialist visit) or for a drug ($10 per generic drug).
  • Coinsurance—a percentage of allowed medical expense for services after the deductible amount is paid (20% is typical)

We, the individual health insurance plan participants, pay 100% of these “cost sharing” components.  The payers in the above graphic (employers, government, and insurance companies) do NOT pay for a “share” of our deductibles, copayments, or coinsurance.

We have no control over how cost share components are treated within the insurance plan. My husband’s company sponsors two health insurance plans–a Preferred Provider Organization (PPO) plan and a High Deductible Health Plan (HDHP). Reading the plan details during open-enrollment, I find that the PPO plan does not count the cost of medical provider office visits for deductible satisfaction, while the HDHP does. Both plans cover medical provider office visits, so by the definition for deductibles above, both plans should include them for deductible satisfaction.  Compared to the treatment of deductibles in the HDHP, the treatment in the PPO plan requires I spend more of my money before the insurer starts to pay.  Why the difference? Perhaps self-funded employer-sponsored insurance plans, without state regulation are allowed greater consumer unfriendly tactics for cost reductions?  Delving under the surface of the insurance plan “package” can be very eye opening.

Deductibles, copayments, and especially coinsurance can add up quickly if you find yourself very sick? Not to worry (except if you are insured by Medicare or a “grandfathered” health plan) because Obamacare (PPACA) has defined a maximum annual out-of-pocket cap to your “cost share”. The details are given in the table below.

Out-Of-Pocket Maximums for 2016

Group Plan Type(s)Annual Maximum Out-Of-Pocket (Single)Annual Maximum Out-Of-Pocket (Family)
“Non-group”Any “non-group” plan, (not grandfathered)$6,850$13,700
Employer- SponsoredAll fully-insured and self-insured plans (not grandfathered)$6,850$13,700
“Non-group” and Employer- sponsoredHigh-Deductible Health Plans (HDHP)/Health Savings Accounts (HSA)$6,550$13,100 **
“Non-group” and Employer- sponsoredGrandfathered* plansNo limitNo limit
Government-sponsoredMedicareNo limitNo limit

*Grandfathered health plans under the Obamacare (PPACA) are those existing without major changes to their provisions as of March 23, 2010.
**Starting in 2016, the out-of-pocket maximum for an individual is the same ($6,550) whether he insures as an individual or as a member of a family. In 2015 and earlier, many HDHPs were designed with only a family out-of-pocket maximum and the individual in a family plan was made to pay the maximum family (and not the individual) out-of-pocket ($12,900 in 2015). A fine example of HICUP’s “read” of vague laws for financial benefit over the consumer.

The annual maximum out-of-pocket spending does NOT have to count health insurance premiums, all out-of-network health care costs, over-the-counter drugs and medical supplies, and all spending for health care that is not considered Essential Health Benefits (EHB). In other words,

maximum out of pocket does not equal total health spending

What about our “share” of the health insurance premium cost? In 2015, the Kaiser Family Foundation survey found that workers on average paid $1071 for single and $4,955 towards family health insurance coverage. Our premium share is NOT considered a part of our “cost share” because it is OUTSIDE the health insurance plan. I know that I may be repeating myself, but it is important to know that “cost share” is only a part of your total health care spending and only has meaning within a given health insurance plan.

Our “share” of the health insurance premium is collected by our employer (usually through payroll deduction) for indirect disbursement to the medical provider.  In contrast, our cost share is paid directly by us to our medical providers (usually at the time of service). Confusing? You bet. It is confusing because we, individual Americans, were never expected to look at or analyze these health insurance plan concepts from our point of view– one that wants to know how much actually comes out of our pockets.

Let’s look at the total money coming out of our pockets for health insurance coverage. I will call it our “cost contribution” for health insurance coverage. The graphic above becomes the following:

health insurance cost contributions to health spending

Note the green arrow showing that your premium share goes to the payer to become the payer contribution. In this figure, your health insurance “cost contribution” includes ALL “cost-shares” from every plan you have (in network, out-of-network, dental, vision, long-term care) and ALL premium shares.

Summary–Health Insurance Cost Share

Cost share is an insurance industry term that refers to the money spent by individual Americans for their own health care for a set of defined benefits within a health insurance plan. The specifics of cost share—deductibles, copays, and coinsurance are set within complex insurance contracts written by the insurance companies and sold to employers.

If you have multiple insurance plans (dental, vision, long-term care), then you have multiple cost shares. Unlike your premium, whose cost is “shared” with your employer, your cost share is actually paid 100% by you (i.e., shared with no one). Cost share and your maximum out-of-pocket spending do not represent your total health spending. Your maximum out-of-pocket spending does NOT include premiums, all out-of-network health care costs, over-the-counter drugs and medical supplies, and all spending for health care that is not considered Essential Health Benefits (EHB).

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