Breaking Down How Health Insurance Works
Health insurance terminology can sound like a different language. What is a deductible? And will a higher deductible lead to higher out-of-pocket costs? What about premiums? Copays?
If you’re scratching your head right now, you’re not alone. We’re here to simplify it for you. Below we have provided definitions and general examples so you can better understand health insurance in action. Scenarios will vary based on your plan type.
Definition: The amount you pay for your health insurance every month.
How it works: You pay a premium every month to keep your plan active (if you have insurance through your employer, this is likely deducted directly from your paycheck). In addition to your premium, you usually have to pay other costs for your healthcare, including deductibles, copayments, and coinsurance.
Definition: The amount of money that a patient with health insurance pays for each healthcare service, such as a visit to the doctor.
How it works: Let’s say you go to the doctor for bad stomach pain. Under your plan, you pay a copay to see a doctor in your network. In most cases, your insurance covers the rest of the costs for your doctor’s visit.
Definition: The amount you owe before your insurance starts paying for services.
How it works: The results are in. Your doctor informs you that you need surgery on your stomach. With hospital bills, surgeon bills, lab fees, and more, the procedure adds up to a lot. However, the surgery is covered under your specific health plan and the doctor's preferred hospital is in the plan's network as well. That means you’ll pay the deductible amount, and your plan will cover most of the rest.
Definition: The portion you pay for healthcare until you reach your yearly limit.
How it works: Now that you’ve paid your deductible, you are responsible for paying the coinsurance as required by your insurance plan. One of the most common coinsurance breakdowns is the 80%/20% split. In this instance, your insurance plan will now pay 80% of your medical expenses, and you will be responsible for 20%, that is, until you reach your yearly limit or out-of-pocket maximum.
Definition: The most you have to pay for covered services in a plan year. Think of it like a cap or a limit.
How it works: Once you have reached your out-of-pocket maximum on expenses such as your deductible and coinsurance, your health plan pays 100% of the costs of covered benefits for the remainder of the year.
Finding the right plan
Now that you have the definitions down and an understanding of how health insurance works, you can pick a plan that fits your needs.
A higher-deductible plan is a good fit for you and your family if you are healthy, rarely need healthcare, and you are willing to pay a higher out-of-pocket cost when you need care in exchange for a lower monthly premium.
A lower-deductible plan is a good fit for you if you have an ongoing health condition and you are willing to pay a higher monthly premium for lower out-of-pocket costs for things like regular doctor visits and prescription drugs.
The plan information and amounts in this article are for informational purposes only. A variety of variables will influence the exact amount that you will have to pay for services. Costs will vary based on factors such as the plan type, your plan’s specific benefits and coverage, benefit limitations and exclusions, the services performed, deductible level and the provider’s network status.