When analyzing the details about your health insurance plan, you will run into terms that may or may not be familiar. Like the heavily-regulated financial sector, the health insurance industry has its own language and abbreviations that are not commonplace. This makes it important to learn how your policy works so you can shop smarter each year during open enrollment, and have a firm grasp on what your plan will cover, should you need to use your insurance for the bumps and bruises of life.
Health Insurance is Paid on a Monthly Basis
When comparing health insurance plans, either through your employer or through a state marketplace or the federal exchange, your monthly cost is determined by ZIP code, gender and date of birth. With these factors your employer or an online quoting website can determine premium. Your premium is the amount you have to pay on a monthly basis for your health insurance plan.
Insurance Doesn’t Always Start Working Right Away
Most health insurance plans have a deductible, which is the total amount you have to pay for covered medical services before your health insurance company is responsible for paying a majority of the bills. For example, if you have a $3,000 deductible, you will have to pay $3,000 out of your own pocket before your insurance carrier begins footing the bill for medical care. (There may be some instances where you only have to pay a flat rate copay for an office visit that doesn’t apply to your deductible.)
Once You Hit Your Deductible, You Still Have to Pay
If you hit your medical deductible and think you’re off the hook for any more medical expenses during the year, think again. Most plans also include coinsurance, which can be one of the more confusing insurance terms. Simply put, once you have met your deductible amount, you are responsible for a percentage of all additional medical expenses. The definition of coinsurance basically means you share the responsibility of paying for a medical claim with your insurance company. Standard coinsurance amounts are 80/20 or 70/30, which translates to the larger amount being the responsibility of the insurance company (80% or 70%) and the smaller amount being your financial responsibility (20% or 30% of the costs).
Insurance Makes Health Care Cheaper
Make no mistake having health insurance does lower your overall medical costs because health insurance companies have preferred rates with providers. That means you typically receive an automatic discount when you see a doctor in the insurance company’s network. Without health insurance, medical expenses are charged at the full retail rate. This is why it’s important to see a doctor in-network so you can receive the discounted rate.
You might also notice your healthcare plan lists an in-network deductible, and an out-of-network deductible. Pay attention to the differences. If you see both in and out-of-network doctors, it will take you longer to hit your in-network deductible amount because your services are being split between the two requirements you have to meet.
Understand How Much You Are Responsible For Out-of-Pocket
At the end of the day, you need to determine if you can afford the out-of-pocket maximum on your health insurance plan. This total is the most you will have to pay out of your own wallet for the deductible, coinsurance and co-pays incurred for in-network services. It does not include the monthly premium. Once you have hit your out-of-pocket maximum for in-network care, your health insurance company will begin paying 100% for your medical services. For example, if you have a $5,750 deductible with a $6,500 out-of-pocket maximum, you are responsible for in-network medical care up to $6,500. Why? You need to hit your $5,750 deductible first, and then pay coinsurance and co-pays up to $6,500. However, if you also seek out-of-network care, those expenses do not do not go towards your out-of-network maximum (another great reason to stay in-network when seeking medical care).
Health insurance is confusing, but keeping these five factors in mind when analyzing plans side by side can be useful. At the end of the day, you need to determine if your family needs rich benefit coverage to pay for more medical services, or if you can get by with less expensive insurance that requires you to foot most of your medical costs yourself. The higher the deductible amount, the lower the monthly cost of the plan. The lower the deductible, the higher the cost of the plan. However, if you have a chronic condition or multiple children who can be accident-prone, sometimes paying more each month with a smaller deductible can actually save you money overall.
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