How Health Insurance Works What is a Deductible Coinsurance Copay Premium

If you have a health insurance plan or you’re in the market for insurance, you
may be feeling a bit overwhelmed and maybe confused by all the terms being
used. Co-pay, deductibles, premiums, coinsurance, individual out-of-pocket
maximum. Add the fact that many of these can vary widely based on the coverage or
plan and you’ve got a lot to wrap your mind around. In this we’re going to
break down and demystify these essential health insurance terms, explain how the
costs work for both you and your insurance company, and hopefully make you
feel a bit more confident about how your plan works. So let’s get started.
Sort of the view from 10,000 feet is that there are three levels of health
care costs and the higher your cost for the year, the higher up you go. Level 1,
level 2, level 3. On level 1, you pay for everything. When your health care
expenses get to a certain point, you enter level 2, where you and your
insurance company share the costs. And if the money you’re paying out-of-pocket
hits your plans cap, then you enter level 3, where your insurance will cover
everything further. We’ll circle back to this at the end, it’ll all make a little
more sense. Now, whether your health insurance is provided through your
employer plan, through somebody else’s employer plan, or government-issued plan
like Medicare or Medicaid, they all have a set amount for premiums, deductibles,
co-pay, and co-insurance. These are all terms that represent your out-of-pocket
costs. If you don’t know what those figures are for your policy, contact your
insurance company to request a copy of your policy. Now I just threw a bunch of
terms at you, let’s define these suckers. Premium. Think of your premium like a
monthly subscription fee, like your Netflix subscription. This is how much
you pay each month to keep your insurance active, and you pay this even
if you never go to the doctor. Just like with Netflix, even if you don’t watch
anything, you’re still paying your subscription, right? Deductible. Your
deductible is amount specified by your plan that you have to pay in a given
year before your insurance pays a dime. For example, if your deductible is set at
$4,000 and the bill for your visit to the hospital was $2,000, you have to pay
a hundred percent of that bill. Bummer. But if your deductible is set at $4,000
and the hospital bill is $8,000, insurance would kick in to help cover
half of that bill. Notice that I said it will help. More on that later. The good
news is that this is an annual deductible, meaning that once you’ve
paid that amount towards covered medical expenses, you don’t have to pay it again
until your plan resets. Often this is on January 1st, but that’s not always the
case. You should check with your insurance provider. When shopping for
health insurance, it’s great to look for a plan with a low deductible. However,
there is, of course, a trade-off. Plans that feature a low deductible come with
higher monthly premiums, while plans with lower monthly premiums have high
deductibles. So why choose one over the other? Well, it comes down to what you
anticipate your usage will be. If you usually go for one, maybe two doctor’s
visits per year, you probably want a high deductible with low premiums. These
are often referred to as catastrophic coverage plans because they aren’t going
to kick in until something really significant or catastrophic happens. On
the other hand, if you visit the hospital a lot or you have some upcoming
procedures, then you probably want to go with a high premium, low deductible plan.
If you have a health insurance usage history, you can use that to help
determine which kind of plan is going to be best for you.
Co-pay. Your co-pay is a set cost that you pay for a covered health care service, such as
visiting an in-network doctor, a specialist, or buying drugs. Let’s say you
go to see your doctor who charges $250 for an office visit, but your insurance
has a co-pay of $50 for doctor’s visits. You pay $50 and your insurance picks up
the rest. Well, hold on a second. How do co-pays work if I haven’t met my
deductible yet? Because co-pays are paying for some of your medical expenses.
Doesn’t that not kick in until after you hit your deductible? Well, confusingly, it
depends on your policy. So, that’s something you really want to check on.
Here’s a tip. Your insurance will likely have a list of preventative care
benefits that they’ll cover at a hundred percent. No co-pay, no deductible, no
coinsurance. These often include vaccines and many types of screenings. So, take
advantage of those. Co-insurance. Remember when I said that insurance would help
cover costs that exceed your deductible? That’s where co-insurance comes in.
Co-insurance is a shared cost between you and the insurance company. So,
depending on your policy, it may say that after your deductible you pay 20% and
your insurance company pays 80%. That’s called an 80-20 policy. Now, for the ease
of math, let’s say you have a 50-50 policy with a $4,000 deductible and you
just had an $8,000 ER visit. You pay the first $4,000 to meet your deductible and
then the second $4,000 would be split 50-50, meaning you’d pay $2,000 to that.
So, for that $8,000 ER visit, you’d be out $6,000. Individual out-of-pocket
maximum. Out-of-pocket is the amount of money that you pay. This includes your
co-pays, doctor’s visits, co-insurance, deductibles, drugs, and the out-of-pocket
maximum is your plan’s cap on how much you have to personally pay towards your
health care costs. After you hit that maximum, a hundred percent is covered by
your insurance. Family out-of-pocket max. Based on what individual yearly
out-of-pocket is, you can probably guess this one, it’s a cap on the medical
costs for a whole family. Now, let’s bring back the three levels example from the
beginning. Now, you start on level one, paying basically everything out-of-pocket.
That is until you reach your deductible and that’s when you go to level two. And
that’s where you’re splitting the cost with your insurance company through
co-insurance. If your medical expenses get so high that the total of what you
paid reaches your yearly out-of-pocket maximum, you move to level three where
all further health care expenses for the rest of the year are 100% covered by
your insurance plan. When your plan resets for the year, you start back at
the beginning. Usually this happens on January 1st, but some plans differ on
their reset date. If you’re still feeling unsure about what this all means or
about your financial responsibility for your covered services, your local health
care facility can often help you obtain and understand this information,
especially when considering an upcoming service or appointment. Hopefully this has helped you feel a little more comfortable with the costs involved in
your health insurance. Thanks for watching.

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