Summary:
- Health insurance is a system to help alleviate your individual costs when seeking medical care
- Health insurance policies have various components such as premiums, deductibles, copays and coinsurance, and out-of-pocket maximums
- Insurance providers contract with healthcare providers to make up networks
- There are various health insurance plan types
The Basics
Health insurance is an agreement between you and an insurance provider: you pay a monthly fee to an insurance provider, and in return, the insurance provider helps cover a portion of your medical costs. Sounds simple enough, but to analyze which insurance plan is right for your healthcare needs, you’ll need to understand the essential components of a health insurance plan:
- Premiums
- Deductibles,
- Covered Services,
- Copays and Coinsurance,
- Out-of-pocket maximums.
- Provider Networks,
- And Plan Types
Monthly Premiums: A Set Fee
Your monthly premium is what you pay to the insurance provider in exchange for them to cover a portion of your medical costs. Premiums are a fixed dollar amount that remains consistent for the term of the policy, regardless of how often you utilize healthcare services.
For example: if you enroll in a health insurance plan starting January 1st and your premium is $200 per month, you would pay your insurance provider $200 every single month that you maintain coverage. This is true if you don’t go to the doctor at all, or if you go to 10 doctor appointments in that month.
The premium is set for a specific term, often aligning with the calendar year. You can of course, cancel your policy at anytime if you no longer want coverage. The insurance premiums will not change during the specified term, but can (and often will) change at the end of the term when a new term is offered.
Deductible: The First Contribution Toward Your Care
A deductible is a set dollar amount that you must pay out-of-pocket toward your healthcare costs before your insurance begins to cover a their share of the expenses. Once you’ve met your deductible, the insurance plan kicks in, helping cover more of your costs.
For example: if your deductible is $750, you would pay your healthcare providers directly for the full price of their healthcare services until the amount you’ve paid toward healthcare services totals $750. After meeting this $750 threshold, your insurance carrier pays a portion of covered healthcare services as outlined by your policy – more on that shortly.
Importantly, most insurance plans will cover the cost of preventative care before you have met your deductible. This includes annual checkups, certain vaccinations and medications, and age-appropriate medical screenings. These services are free to you.
Another important note, is that some insurance plans will note specific services with ‘deductible does not apply’, which means you can receive coverage for those specific services before you meet your deductible. When shopping for a plan you want to pay careful attention to which services are subject to the deductible and which offer immediate benefits.
Keep in mind, the monthly premium you pay toward your insurance provider does not contribute to your deductible, and your monthly premium does not change when or if you meet your deductible.
Covered Services
Your health insurance policy will include a list of covered healthcare services. This is a list of healthcare services that the insurance acknowledges as medically necessary or beneficial and they agree to cover some portion of these services. This might mention:
- Visits to your primary care provider for illness or injury,
- Visits to your primary care provider or a mental health professional for mental health services,
- Visits to a specialist for illness or injury,
- Visits to an urgent care or emergency facility,
- Prescriptions,
- Surgeries to treat injury or illness,
- Diagnostic procedures such as blood work or imaging,
- Rehabilitation such as physical or occupational therapy, and more.
Of course, this means there are excluded services as well. Often excluded services include:
- Weight loss surgeries,
- Elective cosmetic procedures,
- Infertility treatment, and more.
Health insurance policies provide a form called a Summary of Benefits Coverage and a Plan Document which lists the covered and excluded services. These documents also detail to what extent the insurance company contributes toward the cost of these services.
Copay: A Flat Fee for Certain Services
For some covered services, your insurance provider will require you to pay a copay – a flat fee due at the time of the visit paid directly to the healthcare provider – and the insurance provider pays for the rest of the cost of the healthcare service.
For example, if your plan states that office visits are subject to a $20 copay, you’ll pay that amount each time you see your primary care provider for an appointment related to illness or injury. Copays for specialists, like dermatologists or gastroenterologists, are typically higher than visits to your primary care provider.
As mentioned above, usually copays kick in after you meet your deductible. Some plans allow you to pay only a copay for specific services before meeting your deductible, but this varies by plan.
Coinsurance: Your Percentage of Medical Costs
Other healthcare services are subject to coinsurance instead of a copay. For these services you’ll pay a percentage of a covered service’s total cost. For example, if your plan includes a 40% coinsurance rate for urgent care visits, you would be responsible for 40% of the bill if you visit an urgent care facility and the insurance provider covers the remaining 60%.
As with copays, some plans allow for coinsurance payments before meeting your deductible, depending on the specific structure of your coverage.
Out-of-Pocket Maximum: A Safety Net for Major Expenses
Finally, health insurance plans usually include an out-of-pocket maximum, which is the most you’ll pay in a policy period for covered healthcare services. Once your total payments, including deductible, copays, and coinsurance, reach this amount, your insurance will cover all further covered medical expenses for the rest of the year. This maximum offers peace of mind, especially if you encounter significant medical expenses, by protecting you from unlimited out-of-pocket costs.
Remember, even if you meet your out-of-pocket maximum, you are responsible to pay your monthly premium to your insurance provider to maintain coverage.
Networks: Is Your Doctor Covered?
Insurance providers contract with healthcare providers, creating a list of ‘in-network’ providers that you can utilize for your healthcare needs. Networks consist of primary care providers, specialists, pharmacies, and hospitals and urgent care centers.
In-network benefits are the insurance coverage you receive when seeking care at one of these in-network providers. These providers are where you will receive the richest benefits from your health insurance.
Out-of-network benefits are the insurance benefits you receive when seeking care at a provider that is not inside the insurance provider’s network of healthcare providers. These providers are where you will receive less extensive benefits from your health insurance. On some health insurance plans, there is no coverage at all for care sought at an out-of-network provider.
Finally, there are many types of health insurance:
- Medicaid: Free or low cost health insurance for individuals and families who meet income or disability requirements. Medicaid programs are funded by federal and state funds and eligibility varies by state.
- Health Maintenance Organizations: Typically, an HMO only provides benefits if you seek care in their network for providers. HMOs also require that you have a primary care provider. That primary care provider acts as the ‘gatekeeper’ of your medical care and provides you with referrals to other providers as necessary.
- Preferred Provider Organizations: A PPO provides benefits if you seek care in their network of healthcare providers and provides fewer benefits if you seek care out-of-network. PPOs don’t require you to have a primary care provider and you can self-refer to specialists.
- Exclusive Provider Organizations: An EPO only provides benefits if you seek care in their network of healthcare providers. There are no out-of-network benefits. Sometimes they require you to have a primary care provider, but don’t require referrals to specialists.
- Point of Service plans: a POS plan is often described as a combination HMO and PPO plan. You must have a primary care provider who provides referrals to specialists for you, but there are out-of-network benefits available.
- High Deductible Health Plans: A HDHP can be an HMO, EPO, or PPO plan but is defined by its high deductible. These plans qualify their enrollees to open and contribute to Health Savings Accounts, a tax advantaged account meant to save money to use toward medical expenses.
- Catastrophic Health Insurance: Not available in every state and subject to eligibility standards, catastrophic health insurance emphasizes coverage for catastrophic medical expenses rather than routine care.
- Medicare: Only available to those who are 65 or older or those who meet specific disability requirements, Medicare is defined by Part A, Part B, Medicare Advantage plans, and Part D plans. We’ll reserve a deep dive into Medicare for a future blog.
Resources:
- If you need an insurance broker to help you find a health insurance policy, they are available. A local Whatcom County example is Mountain View Insurance.
- If you don’t coverage through employment or a family member, you can shop for a plan through WAHealthplanfinder
- If you are turning 65, resources about Medicare can be found at medicare.gov.
Important Disclosures
This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. For information about specific insurance needs or situations, contact your insurance agent. This article is intended to assist in educating you about insurance generally and not to provide personal service. They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs. Guarantees are based on the claims paying ability of the issuing company. If you need more information or would like personal advice you should consult an insurance professional. You may also visit your state’s insurance department for more information.