Understanding Health Insurance
Why do I need Health Insurance?
Health Insurance in the United States can be obtained either through a private or public exchange. Private health plans are bought individually or coverage can be extended through an employer-sponsored plan. Private plans may cost more, but may have additional benefits not available through the public health care plans. Private insurance plans may also have a larger network of physicians and hospitals. The Public plans are entitlement programs funded by the federal and state governments that use subsidy funding.
What is health insurance?
Health insurance is a contract between you and your insurance company. You buy a plan or policy, and the company agrees to pay part of your medical expenses when you get sick or hurt. Health insurance provides you access to preventive care to keep you healthy, like vaccines, routine physicals and check-ups. Many plans also cover prescription drugs.
Health insurance helps you pay for care
Did you know the average cost of a 3-day hospital stay is $30,000? Or that fixing a broken leg can cost up to $7,500? Having health insurance can help protect you from unexpected costs like these. Your insurance policy will show what types of care, treatments and services are covered, including how much the insurance company will pay for different treatments in different situations.
What will I pay for health insurance?
The cost will be determined by the plan you choose, your age, where you live and if you smoke or not. You’ll usually pay a premium every month for health insurance, and you may also have to meet a deductible once each year before the insurance company starts to pay its share. How much you pay for your premium and deductible is based on the type of insurance you have.
The premium cost is how much you have to pay when you get services. Examples include:
- How much you pay before your insurance coverage starts (a deductible)
- What you pay out-of-pocket for services after you pay the deductible (coinsurance or copayments)
- How much in total you’ll have to pay if you get sick (the out-of-pocket maximum)
What your policy covers is often directly related to how expensive the health insurance policy is. The policy with the cheapest premium will generally not cover as many services and treatments or have lower out of pocket expenses.
How Deductibles, Copays and Coinsuranc Work
When shopping for a new plan, one of the main challenges people face is understanding health insurance terminology. To shop smart, you should understand the differences between the basic coverage terms in all health insurance plans.
What is coinsurance?
Coinsurance (or a copayment) is your share of the cost when you get a medical service, like a doctor’s visit, hospital outpatient visit, or a prescription. Coinsurance is usually a percentage amount (for example, 20% of the total cost). So, for example, if your insurance benefits cover 80% of x-ray charges, you will need to pay the remaining 20%, even if your annual deductible is already met. That 20% is considered coinsurance.
What are the maximum out-of-pocket costs?
When considering a new health plan, the maximum out-of-pocket cost sets a limit to your annual financial liability. Once you have paid out of pocket to the “maximum” amount (typically through deductibles and coinsurance), the insurance company pays the full charges for any additional in-network covered medical services rendered that year.
What is health insurance copay?
Copays are what you pay when you visit the doctor, to share the costs of your healthcare. Copays vary by policy, and can change if you see a specialist instead of a regular doctor, or seek treatment out of your provider’s network. Prescription drug coverage also uses copays, which can increase for specialty medicines, and decrease for generic drugs. In most cases there are no copays for preventive care.
What is a deductible?
The deductible is what you have to pay each calendar year before your insurance starts to pay for larger services such as hospitalization. Many smaller charges like doctors’ visits are covered by a copayment for many plans.
- An example: let’s say you have a $750 deductible. You go to the hospital and the total cost of service is $5,000. You pay the first $750 to cover the deductible, and then your insurance starts to pay its share on the remaining balance.
When you’re choosing a health insurance plan, you’ll want to look at more than the premiums and deductibles. Take a look at the coinsurance amount, too, and then decide which deductible, premium and coinsurance mix is the best option for you and your finances. If you visit your doctor often, you might want to choose a plan that has low copays. For instance, you might choose a plan that has a higher monthly premium but no copay for doctor’s office visits. However, if you don’t visit the doctor often, copays will probably be less of a concern when you’re shopping for coverage.