Health insurance is unique from all other forms of insurance. And because there is little standardization across companies and services, it is rather confusing. It is important to understand the basics of how health insurance coverage works so that you can make informed decisions regarding the coverage you need, and so you know what is going on. Continue reading for a list of terms you should know, and a few examples of health insurance looks in a real-life situation.
Terms You Should Know
Premium – The monthly cost of health insurance coverage. This price must be paid every month to ensure coverage, even if you do not use your insurance that much. This cost is sometimes covered in total or part by an employer.
Copay – A set rate you are required to pay at each health-related visit. Copay cost may vary if seeing a primary care physician, emergency room, or purchasing prescriptions.
Deductible – A predetermined amount of money that resets annually. This is the sum of money that you must pay “out-of-pocket” before your insurance provider begins to pay portions of medical bills.
Coinsurance – Once your deductible amount has been reached, Coinsurance is the portion of a medical bill for which you will be responsible. If your coinsurance is 10%, you will pay that amount while your provider pays the remaining 90%.
Out-of-Pocket Maximum – Out-of-pocket maximum is the total sum you will be required to pay out-of-pocket each year, after which your provider will cover all costs.
The sums of money we are talking with any of the above terms will vary widely between companies. For how these words work together, consider the following scenario:
You have purchased health insurance, and each month you send your monthly premium to the company. Should you have to go to the doctor, you will pay the prearranged copay. The insurance company tracks how much you have paid, and once you hit your deductible, they will begin to contribute towards your medical bills. This continues with you and your provider paying portions (coinsurance) until you reach your out-of-pocket maximum. At this point, the insurance company pays all bills until the yearly reset.
Now, this is how it works should everything work ideally. However, some rules apply to when your insurance covers a bill, including whether or not you visit a doctor that is within your company’s network. Here are some more terms with which you should be familiar:
Network – The system of health providers with which your insurance company has negotiated contracts with and accept your insurance.
Out-of-Network = Any health provider that does not have a contract with your provider. While some insurance companies will only require you pay a portion of out-of-network visits, some will require you to pay the full amount.
In-network- Providers who are working with your insurance company with negotiated rates of pay. Bills from these providers will be in general less than out-of-network, and any costs will contribute towards your deductible.
Let’s walk through another example using these terms.
You have purchased health insurance and responsibly make all premium payments. You are single, and only cover yourself. Your annual deductible is $1500. You are responsible for copays of $15 per visit, but these do not contribute towards meeting your deductible. Once you meet your deductible, your company provides coinsurance. At this point, you will be responsible for 10% of medical bills and your provider pays the remaining 90%.
Upon arriving at the specialist for your MRI, you pay your copay which is $15. The total cost of the MRI and all other related services is $1000. Because you have not met your deductible, you pay this expense.
Later, celebrating that your MRI was clean, you jump for joy and twist your ankle. You head to the emergency room and pay an $100 emergency room copay. You are thankful that you met your deductible with the MRI when your bill comes to $4000. With coinsurance, you pay 10% of the bill, or $400. Your insurance company pays the remaining $3600.
Prices used do not reflect your individual situation, and it is wise to talk through all of these expenses with your insurance company.