If you have a health insurance plan, or you’re in the market for insurance, you may be feeling a bit overwhelmed and confused by all the terms being used. Terms like copay, deductibles, premiums, co-insurance, and individual out-of-pocket maximum can be confusing, especially when they can vary based on the coverage or plan. In this blog, we will break down and demystify these essential health insurance terms, explain how the costs work for both you and your insurance company, and hopefully make you feel a bit more confident about how your plan works.
The Three Levels of Healthcare Costs
At a high level, there are three levels of healthcare costs: level one, level two, and level three. On level one, you pay for everything. When your healthcare expenses reach a certain point, you enter level two, where you and your insurance company share the costs. And if the money you’re paying out of pocket hits your plan’s cap, then you enter a level three, where your insurance will cover everything further. We’ll circle back to this concept later.
Key Terms and Definitions
Think of your premium like a monthly subscription fee, similar to your Netflix subscription. This is the amount you pay each month to keep your insurance active, regardless of whether or not you use any healthcare services. Just like with Netflix, even if you don’t watch anything, you’re still paying your subscription fee.
Your deductible is the amount specified by your plan that you have to pay in a given year before your insurance starts covering the costs. For example, if your deductible is $4,000 and the bill for your hospital visit is $2,000, you have to pay the full $2,000. However, if your deductible is $4,000 and the bill is $8,000, your insurance would kick in to cover half of that bill. It’s important to note that insurance will only help cover costs beyond your deductible.
The good news is that a deductible is an annual amount, meaning that once you’ve paid that amount towards covered medical expenses, you don’t have to pay it again until your plan resets. Usually, this reset happens on January 1st, but it’s important to check with your insurance provider for the specific details.
When shopping for health insurance, it’s great to look for a plan with a low deductible. However, keep in mind that plans with low deductibles usually come with higher monthly premiums. On the other hand, plans with lower monthly premiums often have high deductibles. The choice between the two depends on your anticipated healthcare usage. If you rarely visit the doctor, a high deductible plan with low premiums might be suitable for you. On the other hand, if you expect to have frequent hospital visits or upcoming procedures, a high premium, low deductible plan might be a better fit.
A copay is a fixed cost that you pay for a covered healthcare service, such as visiting an in-network doctor, a specialist, or buying prescription drugs. For example, if your doctor charges $250 for an office visit, but your insurance has a copay of $50 for doctor’s visits, you would only pay $50, and your insurance would cover the rest. However, how copays work before meeting your deductible depends on your policy, so it’s important to review the details.
One important thing to note is that many insurance plans cover preventive care benefits at 100%, meaning there is no copay or deductible. These benefits often include vaccines and various screenings. It’s highly recommended to take advantage of these benefits.
Co-insurance refers to the shared costs between you and your insurance company after you’ve met your deductible. Depending on your policy, it may specify that you pay a certain percentage, while your insurance company covers the rest. For example, an 80/20 policy means you pay 20% of the costs, and your insurance company pays 80%. Co-insurance helps cover costs that exceed your deductible.
Individual Out-of-Pocket Maximum
Out-of-pocket costs include copays, doctor’s visits, co-insurance, deductibles, and prescription drugs. The individual out-of-pocket maximum is the maximum amount you have to personally pay towards your healthcare costs in a year. Once you reach this maximum, your insurance will cover 100% of the costs.
Family Out-of-Pocket Maximum
The family out-of-pocket maximum is similar to the individual out-of-pocket maximum, but it applies to the entire family. Based on the individual yearly out-of-pocket maximum, the family out-of-pocket maximum sets a cap on the medical costs for the whole family.
Understanding the Three Levels
Now, let’s revisit the concept of the three levels from the beginning. Initially, you start at level one, where you pay for everything out of pocket. Once your healthcare expenses reach your deductible, you move to level two, where you and your insurance company share the costs through co-insurance. If your expenses continue to increase and reach your yearly out-of-pocket maximum, you enter level three, where all further healthcare expenses for the rest of the year are covered by your insurance plan. When your plan resets for the year, you start back at level one.
It’s important to note that the reset date for plans may vary. While most plans reset on January 1st, it’s always a good idea to confirm the reset date with your insurance provider.
Understanding health insurance costs can be overwhelming, but it’s crucial to have a clear understanding of the terms and how they impact your finances. If you’re still feeling unsure about your financial responsibility or need more information about your covered services, reach out to your local healthcare facility. They can often provide assistance in obtaining and understanding this information, especially when you have an upcoming service or appointment. By having a solid grasp of your health insurance costs, you can make informed decisions and feel more confident about your plan.
Thank you for reading!