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What is employee cost sharing?
Employee cost sharing refers to the portion of health insurance costs above and beyond the premium contribution. Employees are expected to pay that portion out of pocket. Cost-sharing expenses include deductibles, co-payments, and coinsurance.
Health plans often set annual limits on employees’ maximum out-of-pocket expenditures. Once the maximum is reached, the plan pays all covered medical expenses for the remainder of the year. Plans usually place a maximum limit, or cap, on the total dollar amount—usually $1 million—they will pay out over an insured person’s lifetime.
The box illustrates employee cost sharing, or out-of-pocket expenses, in a common medical situation.
Figuring the Total Cost: A Typical Scenario
An employee who injured his arm while riding a bicycle seeks medical attention at a nearby walk-in community health center, which happens to be a provider not included in his PPO network. His premiums have been paid every month, and he has already met his annual deductible of $300. He sees a doctor who orders X-rays, sets the broken arm, and writes a prescription for a pain reliever. Under these circumstances, the patient’s health plan requires that he pay 20 percent of the doctor’s fee ($350) and the radiology fee ($100), plus a $10 co-pay for filling the prescription with a $30 generic drug at a local pharmacy.
The employee’s out-of-pocket costs are:
Coinsurance for doctor's bill = $70 |
($350 x 20%) |
Coinsurance for X-ray = $20 |
($100 x 20%) |
Co-payment for prescription = $10 |
(of $30) |
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Total cost of injury |
$480 |
Total out-of-pocket costs |
$100 |
Total amount insurance pays |
$380 |
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Part 1: Insurance Basics