How Does Insurance Work and How is it Calculated?

 In CPAP Insurance, Most Popular Posts

Navigating the complexities of health insurance can be quite difficult if you are unfamiliar with how insurance works.  There are a few main aspects that make up the price that you pay for DME with your insurance.  These include your deductible, your co-insurance rate, and your out-of-pocket maximum.  These amounts and rates will change for each individual heath insurance plan, so it is no wonder why this stuff can be confusing!

Factors that Influence Prices

  • Deductible

 

  • Co-insurance Rate

 

  • Out-of-Pocket Maximum

Deductible

A deductible is the amount you must pay out-of-pocket in medical expenses before your co-insurance rate kicks in to lower your share of the cost that is paid for the medical expense (such as CPAP supplies).

When breaking down your deductible, the two aspects that are most important are your deductible met and deductible remaining, as these number will influence how much you pay for a certain product.

The deductible met is the amount you have paid out-of-pocket in medical expenses that is counted toward your overall deductible.

The deductible remaining is the amount that you have remaining before you have completely met your deductible.

Note: Deductible = Deductible Met + Deductible Remaining

If you want to learn more, we have an extensive article on How Your Deductible Affects CPAP Costs.

Co-Insurance

A co-insurance rate is the percentage of a medical expense (like CPAP supplies) that you are required to pay after you have met your deductible.

Co-insurance cost sharing rates range from 100/0 to 50/50, where the insurance pays 100% of the cost and you pay 0% of the cost to where the cost is split equally by both you and your insurance company.  However, more common co-insurance rates range from 10%-40%, meaning you, the patient, will be responsible for paying 10%-40%.  This percentage often depends on whether the Durable Medical Equipment (DME) / CPAP provider is in-network or out-of-network with your insurance company.

Common Co-Insurance Rates
In-Network Out-of-Network
Percentage You Pay 20% 40%
Percentage Your Insurance Company Pays 80% 60%

In-Network

Out-of-Network

out-of-network-co-insurance-chart

If you want to learn more, we have an extensive article on How Your Co-insurance Rate Affects CPAP Costs.

Out-of-Pocket Maximum

Your Out-of-pocket maximum is the most money you will pay during a year for coverage. It includes deductibles, copayments, and coinsurance, but is in addition to your regular premiums.  Beyond this amount, the insurance company will pay all in-network medical expenses for the remainder of the year.  (Health Sqyre explains in greater detail in our Out-of-Pocket Maximum Page)

Money falling out of pocket

How Are These Terms Related?

So now that we have defined three of the major insurance plan components, the most important question can finally be asked; how do these things affect the price that I pay?

The entire deducible must be paid off before the insurance company will split the cost of medical expenses with you.  Then, you will begin paying the co-insurance rate for any expense (typically 10-40% of expense) until you reach your out-of-pocket maximum.  Only when you have reached this threshold will insurance pay for 100% of the total medical expense.

How is the Price of Your Insurance CPAP Calculated?

The amount of your health plan’s deductible that you have met (amount you have spent out-of-pocket on medical supplies) will be somewhere in the following three categories: Zero Deductible Met, Deductible Partially Met, or Deductible Met.

We are going to use King Arthur, yes he was a former sqyre, for our examples below.  Here is what we need to know about Arthur and his insurance plan:

Patient Information

Deductible Information Patient

Name: King Arthur

Insurance Provider: Aetna

Co-Insurance Rate (In-Network): 20%

Deductible (In-Network): $3,000.00

Product Overview

resmed-airsense-10-cpap

Product: ResMed AirSense 10 AutoSet CPAP with HumidAir Humidifier

Manufacturer: ResMed

HCPCS Code(s): E0601, E0562, A9279, A7037

Price: $883.00

Note: This example assumes that (1.) Arthur has not met his Out-of-Pocket Maximum and (2.) that Arthur is using his insurance to purchase CPAP supplies from an In-Network store.

In this example, Arthur has spent all $3,000 out-of-pocket of his deductible on medical supplies/services. This means that Arthur has met his deductible, and insurance will start sharing the cost with him through his co-insurance rate.

Zero Deductible Met – Arthur’s Deductible Met is $0

Arthur’s Insurance Status Before Purchasing a CPAP Machine

Deductible: $3000.00

Deductible Met: $0.00

Deductible Remaining: $3000.00

Price of Product: $883.00

Amount Arthur Pays (Out-of-Pocket): $883.00

Amount Arthur’s Insurance (Aetna) Pays: $0.00

Arthur’s Insurance Status After Purchasing a CPAP Machine

Deductible: $3000.00

Deductible Met: $883.00

Deductible Remaining: $2117.00

Price of Product: $883.00

Amount Arthur Pays (Out-of-Pocket): $883.00

Amount Arthur’s Insurance (Aetna) Pays: $0.00

Pro Tip: If it is cheaper for you to pay in cash and not use your insurance [Health Sqyre will submit a claim to your health insurance company for FREE.] This will allow the purchase to count towards your deductible most of the time!

Pro Tip: Cash prices are typically cheaper than insurance prices, so if you have not met your deductible it’s usually cheaper to pay for your CPAP supplies using cash (out-of-pocket) instead of using your insurance.

The cost of the CPAP machine that Arthur purchased has been added to Arthur’s deductible met.  Seen a different way, Arthur’s deductible remaining has now decreased by the same amount – $883.00 and is now only $2,117.00.

Deductible Partially Met – Arthur’s Deductible Met is $2,500

In this example, Arthur has spent $2,500 out-of-pocket on medical supplies/services.  This means that Arthur has to spend $500 more out-of-pocket on medical supplies/services before his insurance will start sharing the cost with him through his co-insurance rate.

Arthur’s Insurance Status Before Purchasing a CPAP Machine

Deductible: $3000.00

Deductible Met: $2,500.00

Deductible Remaining: $500.00

Price of Product: $883.00

Amount Arthur Pays (Out-of-Pocket):

  • Out-of-pocket amount needed to meet his deductible: $500.00
  • Co-insurance Amount (20%): $883.00-$500.00 = $383.00*20% = $76.60
  • Total: $500.00 + $76.60 = $576.60

Amount Arthur’s Insurance (Aetna) Pays:

  • Co-insurance Amount (80%): $883.00-$500.00 = $383.00*80% = $306.40
  • Total: $306.40

Under these circumstances, Arthur will pay a total of $576.60 out-of-pocket because he has not met his deductible yet.  Arthur is required to pay $500.00 out of pocket to meet his deductible.  The amount the product costs over $500.00 is then shared with his insurance company through his co-insurance rate.  In this case, the shared amount is $383.00 ($883.00-$500.00).  He owes his portion of the co-insurance rate, 20% on this amount, which comes to $76.60 ($383.00*20%).  His insurance will then pay for their share of the co-insurance rate, 80% on this amount, which comes to $306.40 ($383.00*80%).

Arthur’s Insurance Status After Purchasing a CPAP Machine

Deductible: $3000.00

Deductible Met: $3,000.00

Deductible Remaining: $0.00

For any of Arthur’s future medical supply/services purchases, he will only be responsible for his co-insurance rate portion.  Once he has [met his out-of-pocket maximum] then he won’t be responsible for any of his share and his insurance company will be responsible for covering 100% of his medical purchases.

The cost of the CPAP machine that Arthur purchased has been added to Arthur’s deductible met and he has now completely met his deductible.  Seen a different way, Arthur’s deductible remaining has now decreased to zero.

Deductible Met – Arthur’s Deductible Met is $3,000

In this example, Arthur has spent $0 out-of-pocket on medical supplies/services.  This means that Arthur has to spend $3,000 out-of-pocket on medical supplies/services before his insurance will start sharing the cost with him through his co-insurance rate.

Arthur’s Insurance Status Before Purchasing a CPAP Machine

Deductible: $3000.00

Deductible Met: $3,000.00

Deductible Remaining: $0.00

Price of Product: $883.00

Amount Arthur Pays (Out-of-Pocket):

  • Out-of-pocket amount needed to meet his deductible: $0.00
  • Co-insurance Amount (20%): $883.00-$0.00 = $883.00*20% = $176.60
  • Total: $176.60

Amount Arthur’s Insurance (Aetna) Pays:

  • Co-insurance Amount (80%): $883.00-$0.00 = $883.00*80% = $706.40
  • Total: $706.40

Now, Arthur will only pay his share of the co-insurance rate (20%) out-of-pocket because he has met his deductible.  This means that his out-of-pocket cost is $176.60 ($883.00*20%).  Alternatively, his insurance will pay their share (80%) of the CPAP machine, which totals $706.40 ($883.00*20%).

Arthur’s Insurance Status After Purchasing a CPAP Machine

Deductible: $3000.00

Deductible Met: $3,000.00

Deductible Remaining: $0.00

The cost of the CPAP machine that Arthur paid out-of-pocket through his co-insurance rate did not affect his deductible met because it has already been met (fully paid).  However, the money that Arthur did spend paying the co-insurance rate will go toward his out-of-pocket maximum amount.

Pro Tip: Know how close you are to meeting your annual out-of-pocket maximum, as this could save you lot of money. If you have met your out-of-pocket maximum then your insurance company will pay the entire cost for the CPAP supplies that you need according to the reimbursement schedule!

Deductibles are the first components in the insurance equation.  The next are co-insurance rates and out-of-pocket maximums.  To learn about how those work and how they affect the cost of your CPAP supplies simply click on those links.

Examples of Real Insurance Scenarios

Health Sqyre has a Patient Case Study Page that details the best ways to utilize your plan under a multitude of different health plans and scenarios.

doctor helping patient

With Health Sqyre, there it is not necessary to know where you stand with your current insurance plan (although it can be good to know) because we do all of the math for you!  We will show you the best price on CPAP supplies and recommend when it is cheaper to use cash vs. insurance and vice versa automatically.  Sign up for a free account in order to learn how you can save money on DME!

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