This article is an original article from January 5, 2009. It was written by Nick Perry.
Health insurance can be a complicated thing to figure out alone. A lot of questions immediately spring to mind when looking at health insurance policies. What’s a premium and how are they paid? What’s a copay? How does my deductible work? What do you mean “coinsurance?” In this article, we’re going to go over the basics of individual health insurance policies and try to clear up some common misconceptions. After reading this, you’ll be a more informed consumer and better equipped to select a health insurance policy appropriate for your needs!
First things first, what is health insurance and why do you need it?
This question’s simple. Health insurance is a type of insurance that protects you against the costs of medical care – and believe me, medical care can be expensive! Take a look at a few real-life claims and imagine how different the patient’s situation might have been without the coverage provided by their medical insurance (for reference, these claims were paid by Assurant Health). When you see “cost to patient” below, that cost generally represents the patient’s deductible and coinsurance. Don’t worry, we’ll cover exactly what these terms mean soon!
38 year old male, heart attack
Cost to patient: $3500
Amount paid by insurance company: $92,729.87
18 year old female, multiple injuries resulting from motor vehicle accident
Cost to patient: $550
Amount paid by insurance company: $165,818.16
13 year old male, leg broken in bicycle accident
Cost to patient: $5500
Amount paid by insurance company: $337,404.68
33 year old male, complications from prescription medication
Cost to patient: $3,838.98
Amount paid by insurance company: $1,467,700.55
Now, it’s obvious that having health insurance protected these people from HUGE medical bills that might have otherwise had a severely negative impact on their financial well being. You may read those claims and think to yourself “But I thought they had health insurance! They pay their premiums for coverage – why did they have to pay anything at all?” This is where several very important elements of any health insurance plan come in: the premium, the co-pay, the deductible, out-of-pocket limit and the coinsurance. Let’s go over these one by one.
Many plans include a copay, which is most easily explained as a small, set dollar amount that covers certain medical services. For instance, if your plan has a $20 copay for a primary care physician’s office visit, then a trip to your family doctor will cost you $20 out of pocket and the insurance company will pay the remaining balance for the visit. Plans with copays generally offer them for doctor’s office visits, prescription drugs, emergency room visits, and sometimes visits to outpatient surgical centers. It’s very important to make sure you know exactly what services are covered by your insurance copay before you solicit or agree to services provided by medical practitioners. Some copays include all services that can be included during the course of an office visit, while others may only cover the physician’s evaluation – any diagnostic tests, applications of casts, injections, or other miscellaneous services might not be covered. If you have questions as to what your policy covers, contact your health insurance agent. Your agent should be familiar with your individual policy and will be able to review your policy with you and answer any questions you might have.
A deductible is the amount of money that you, the patient, are 100% responsible for before your insurance plan will pay anything beyond what is outlined in your copay agreement. If your plan has a $1000 deductible, you will have to pay one thousand dollars towards the cost of your medical care before your plan begins to pay any benefits. As a general rule, the higher the deductible is on a policy, the lower the premiums. This is because the insurance company assumes less of the financial risk of your policy and you assume more financial risk. Once your deductible is met (meaning you have paid, in this example, $1000 towards your medical care), your benefits begin to kick in.
However, just because you’ve met your deductible doesn’t automatically mean that your insurance plan will cover the rest of your medical bills in full. Most plans have what’s known as an out-of-pocket limit (this is sometimes also called a stop-loss or break point – these terms all mean the same thing). This limit is the maximum amount you’ll be required to pay for any given benefit period – the maximum amount of money that will come “out of your pocket.” If you’re responsible for 100% of your medical costs up to your deductible, and the insurance company is responsible for 100% of your costs over your out-of-pocket limit – but what about in between, above your deductible but below your out-of-pocket limit? This is where coinsurance comes in. Say you have a 20% coinsurance on your policy – you will be responsible for 20% of the cost of your bill and the insurance company will be responsible for 80% of your bill until you have paid enough money out of your own pocket that your out-of-pocket limit is reached.
This is just the beginning – health insurance can be very complicated, and having your own independent agent on your side can help you navigate these tricky waters. In the following articles, we’ll delve a little deeper into the nuances of health insurance. If you have questions that require immediate assistance, or you’d like to talk to someone directly about your insurance needs, please feel free to contact me directly.