How Health Insurance Works (And Why Knowing Can Save You Money)
Health insurance is by far one of the most confusing things people have to understand. It’s not something that’s taught in school, and by the time you need it, it can be embarrassing to admit your lack of knowledge. So, you muddle through, try your best, and get by without ever truly understanding how health insurance works. Consequently, you may be paying more for health care than you need to be.
Well, all that changes today.
The best way I’ve heard health insurance explained was by comparing it to car ownership. When you own a car, you make monthly payments toward your car insurance and loan; it’s a set amount that doesn’t change from month to month. This is similar to your insurance premium that you have to pay every month to your health care provider.
Then, there are routine payments you expect to make. For a car, this could mean filling up on gas or replacing a tail light. For insurance, this is similar to your copayment or sometimes coinsurance. A copayment is a fixed amount (e.g. $25) for a covered service. Coinsurance, on the other hand, is a set percentage of the cost of a covered service that you’ll pay after you’ve met your deductible. So, when you go to the doctor for a checkup or to fill a prescription, these are extra costs you pay on top of your monthly premium.
Lastly, there are the occasional large, unexpected expenses like an accident or broken windshield. When it comes to the bigger unplanned expenses in health care, such as a surgery or broken bone, health insurance gets a little more complicated.
The first thing to keep in mind is your deductible. Your annual deductible is a predetermined amount you have to meet before your health insurance will cover anything else (except for some free preventative services). These can range from $500 to $3000 or more, depending on your plan. You must pay your entire deductible before using your insurance. Once your deductible is met, your coinsurance kicks in. So, for example, let’s say you have hip replacement surgery for $30,000; your deductible is $2,000 and your coinsurance is 30 percent. You would first pay your $2,000 deductible, then 30 percent of the remaining $28,000, or $8,400.
However, there is an out-of-pocket maximum to consider. In 2017, the out-of-pocket medical expense limit was $7,150 for an individual and $14,300 for families. So, the maximum amount you would have to pay would be one of those amounts, and insurance would cover the rest.
So, How Do You Save Money?
The most efficient way to save money is by choosing a plan that best meets your needs. Choosing between a high deductible plan (HSA) or more traditional PPO plan can be what makes or breaks the bank. With a high deductible plan you’ll be paying a lower premium every month, but have higher out-of-pocket costs for medical expenses. With a traditional health plan, you’ll be able to have your insurance kick in faster, but the monthly premiums can be a higher cost.
We get it—health insurance can be confusing (even to those of us who work in this space!). However, we hope this post has provided a bit more clarity, along with a few tips to lower your costs.