Wouldn't it be nice if cost sharing meant someone was going to help us pay all our bills? In the health insurance industry, that's exactly what cost sharing means. In some cases though, medical cost sharing doesn't always look like the same kind of sharing we all (hopefully) learned on the playground.
But don’t take your ball and go home yet! Cost sharing can be a huge help to your budget, so it’s worth digging into.
Now, a quick heads up: There are two ways to think about cost sharing—the traditional way and the new way. We’ll dive into both and then talk about how the new kind of health cost sharing can benefit you.
So, what is cost sharing in health insurance?
Health insurance cost sharing is the portion of your medical bill the insurance company shares with you after you meet your own out-of-pocket payment responsibilities (deductibles, coinsurance and copays). Then, depending on your coinsurance split—usually 80/20—your insurance company kicks in a partial payment for your health care bill.
Sound familiar? Probably because this sharing strategy has been part of the insurance industry forever. It’s how they do business.
Here’s some encouraging news for anyone who’s been confused and frustrated by traditional insurance cost sharing—there’s a new way of sharing health care costs that’s cheaper and simpler. You might’ve heard it called health sharing or health cost sharing. Health share plans are like cooperatives where members cover a portion of each other’s medical costs. How’s that for loving your neighbor?
But before we compare the two types of cost sharing in more detail, let’s review health insurance out-of-pocket costs (deductibles, copays and coinsurance) to see how they fit into traditional cost sharing.
First let’s look at out-of-pocket costs as a whole. It’s important to understand the health insurance industry considers out-of-pocket costs as cost sharing expenses. What? How?
Think of it like this. The dollars you spend on out-of-pocket costs like deductibles, copays and coinsurance are actually part of the deal you made with the insurance company when you bought your policy. This means that you agreed to share a portion of the cost of your medical bills by paying specific out-of-pocket expenses (in addition to your premium).
A deductible is the dollar amount you agree to pay out of your own pocket before the insurance company contributes to your medical bills. Deductibles accumulate annually, so once you reach your deductible for the year, the dollar amount you’ve paid toward your deductible returns to $0 on January 1 of the following year.
Here's an example. Suppose your deductible is $5,000 a year and you’re facing a $10,000 bill for a heart procedure your doctor recommends. If the procedure’s covered, and you’ve already paid your $5,000 deductible for the year, the insurance company is (partially) responsible for the $10,000 bill—their portion is based on your coinsurance percentage.
Copayments (aka copays) are a fixed dollar amount you pay each time you receive covered medical care. For example, for the same $10,000 heart procedure mentioned above, you may have to spend $400 on copayments for doctor visits and medication.
Coinsurance is the fraction of a covered medical expense you’re responsible for paying after you’ve met your annual deductible. In other words, you’re splitting the cost of medical services with your health insurance until you reach your out-of-pocket maximum.
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Typically, insurance companies offer coinsurance rates as fractions like 80/20 or 90/10. For an 80/20 coinsurance rate, the insurance company pays 80% of each bill (after you meet your deductible) and you’re responsible for the remaining 20%.
Now let’s add up all the costs (deductible, copayments and coinsurance) we’ve been using to show the medical cost sharing scenario for a $10,000 heart procedure.
Out-of-Pocket Expenses
Patient Cost Sharing
Insurance Cost Sharing
You can see in the table above that your total cost sharing obligation for the heart procedure is $2,400 and the insurance company’s cost sharing obligation is $8,000. But don’t forget you’ve been paying monthly premiums this whole time, plus payments toward your $5,000 deductible.
Now we can talk about maximum out-of-pocket limits and how they affect traditional medical cost sharing.
Here it is in a nutshell. Let’s say your out-of-pocket maximum for a given year is $7,500. Once you reach that out-of-pocket maximum—including your deductible, copays and coinsurance—your insurance company pays 100% of covered medical expenses.
For the $10,000 heart procedure scenario we’ve been discussing, you haven’t yet reached your $7,500 maximum. So, in this case unfortunately, you’re still responsible for part of the bill. But you’re really close to getting 100% of your bills covered for the rest of the year because you’ve spent $7,400 ($5,000 deductible plus $2,400 in copays and coinsurance).
Frustrating? It can be.
It’s time to take a look at a new kind of medical cost sharing that’s quickly becoming a popular alternative to traditional health insurance.
The main difference between traditional cost sharing and new cost sharing plans is that instead of having an insurance company pay (part of) your medical bill, other participants in your health sharing plan contribute to your bill for approved medical services.
Here’s how it works. All the members of the health sharing plan pay a monthly premium. Part of those premiums are set aside to help fellow plan participants with their bills. So when you get a medical bill, you pay it yourself. Then you submit your bill to your health share organization to confirm that it’s eligible for sharing. Once it’s approved, you’ll receive a reimbursement from the plan for the covered portion of your bill.
For a deeper dive, check out this easy-to-understand article that explains the nuts and bolts of health sharing plans.
This two-way sharing between patients—instead of between patient and insurance company—is the beauty of health share plans because it helps meet your own health care needs and those of other people. And helping others is what it’s all about.
Here’s another benefit. Because you’re technically a cash-paying customer, you have the option of negotiating a better price for a medical service charge. On the flip side, insurance companies typically set medical service charges in stone based on your plan tier, so your chances of negotiating a better price are slim to none.
If you’d like to experience the benefits that health share plans offer—lower costs, less red tape, a chance to help others, and health care expenses that line up with your personal beliefs—our RamseyTrusted provider Christian Healthcare Ministries (CHM) can help you figure out your options.
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