Health insurance can be a complicated topic, even for individuals who have been covered their entire lives. Whether you’re just getting coverage of your own or are simply looking to learn more, there is a lot to understand. Health insurance can be tricky because coverage is different for everyone and is based on your individual needs. Moreover, it’s the one thing in life that you buy and hope you never need to use, so it’s easy to have a “get it and forget it” mentality.
The good news is that once you understand your coverage and personalize it for you and your family, it’s easy to update and use in the event you need it.
Let’s begin with some basic health insurance terms you need to know.
With all monthly services or subscriptions, you pay a monthly fee. Health insurance is the exact same way. A premium is simply the amount you pay for your plan each month. However, keep in mind a few things when looking at health insurance premiums. The first is that a premium is not the only cost you will pay for health insurance. It is one of a few healthcare insurance expenses. The second is that the lowest premium is not always the best option. If you have high medical expenses—think ongoing health conditions, daily prescriptions, and coverage for several family members—you may want to consider paying a higher premium and a lower deductible.
In addition to your monthly premium, you will also pay a health insurance deductible. It is only paid, however, when you need to use your health insurance. A deductible is a certain about of money that you pay for healthcare services before your health insurer begins to pay. For example, if you have a $2,000 deductible and you need to have surgery, you will pay $2,000 out-of-pocket before your health insurer starts paying. Again, if you don’t have high medical expenses or plans to have procedures done, you can pay a lower monthly premium and a higher deductible, knowing you will likely not meet the deductible.
Coinsurance & Copayment
After you have met your deductible, the insurance provider will begin covering medical expenses. However, you will continue to pay a coinsurance, which is a percentage of the healthcare service expense. For example, if your coinsurance is 20% and a procedure costs $1,000, you will pay $200 out-of-pocket.
Copayments or copays are a flat fee that you pay for medical services, like a doctor’s appointment or dental exam. Copay fees do not go toward your deductible and vary by specialty. For example, a visit to a minute clinic may have a $20 copay while an appointment with a specialist may cost as much as $75 out-of-pocket.
In vs. Out of Network
Health insurance companies make contracts with healthcare providers, which allow them to offer you care at a negotiated cost. When you see a provider who is deemed “in-network” by your insurer, the cost will be reduced or covered. However, if a doctor or hospital is “out-of-network,” the health insurer may not be willing to cover the expenses.
Any expense that you pay directly—think premiums, deductibles, copays–are all out-of-pocket expenses. Some insurers will provide an out-of-pocket maximum, which limits that amount you spend before the insurance provider pays 100% of in-network expenses.
Health Insurance Plans
You’ve likely heard acronyms like HMO and PPO when referring to health insurance plans. There are different types of plans to choose from depending on the type of coverage you need. The two most common are HMO and PPO. An HMO—Health Maintenance Organization—plan provides coverage in a specific network, typically based on geography, and tends to have lower premiums and out-of-pocket costs. On the other hand, a PPO—Preferred Provider Organization—plan has more flexibility when it comes to in- and out-of-network providers but requires a higher monthly premium.
Health insurance can be a complex topic to understand. What is most important to know is that it can be customized to your healthcare needs and can be updated as your life changes. While insurance can be a pain to think about, understanding it can save you a headache when you need it.