This Health Insurance 101 guide will walk you through on all the basic healthcare processes, words, and facts that you need to know.
The United States spends more on healthcare than any other high-income nation; in 2015, more than $3.2 trillion was spent on healthcare alone. Yet, in spite of all that money spent on our health, a vast majority of us likely don’t fully understand what goes on in our healthcare system – which policies directly impact us, where and how much money goes to whom, or even exactly how health insurance works.
It makes sense of course. Navigating the American healthcare space is difficult (even our president has admitted to its complexity). To help alleviate some of that confusion, we’ve put together this Health Insurance 101 guide to help you make sense of the all the basics you need to know about healthcare.
How Health Insurance Works
Insurer Pays a Portion of Medical Expenses
Access to healthcare in America is limited and costly. Having health insurance is important because it safeguards you from having to pay hundreds – even thousands – of dollars to cover your medical expenses. By paying a monthly fee to an insurer, the insurer guarantees that it’ll cover a certain percentage of costs or certain treatments/procedures tied to your health.
Sharing the Risk
Just like every other type of insurance, health insurance works because it involves sharing risks. For any specific insurer (whether it’s the government or a private insurance company), a group of people pay the insurer a certain amount every month. By paying the insurer, these people essentially make a decision to share the risk amongst themselves. Health insurance works by spreading the overall costs of care among the group of people under the insurer. The monthly fees collected by the insurer are pooled into a fund that is then used if for medical expenses to pay for preventative or standard care and for treatments.
It’s a Financial Contract
By buying an insurance policy, you get into a legal contract with the insurer. Each plan’s policy lays out specifically what you’re buying – everything from what medical expenses are covered and what expenses aren’t to the costs you must incur each month and costs you that you have to fork over to access certain services or treatments. When you’re browsing around for health plans to consider, often this type of information can be found under “Plan Details”. Plan Details is a summary of the larger health insurance certificate that explains what benefits the health insurance company will cover in the event you use medical services or care.
It’s absolutely important that you read your policy thoroughly in order to minimize your overall medical expenses in the long-run.
Why Health Insurance Is Important to Have
About 50 million Americans lack any kind of proper health coverage. While health insurance certainly adds to a person or family’s monthly costs, without health insurance, there are several things you put yourself at risk to:
- You risk financial ruin: We’re not immune to injuries or illness; if and when that happens, you risk falling into medical debt.
- You won’t have access to preventative and primary care.
- You may have trouble getting follow-up care.
- You won’t have access to affordable drugs; and
- Being uninsured inevitably impacts everyone.
You can read more about health insurance’s importance here.
Words Associated with Health Insurance Costs
This is the amount paid to the health insurance company every month to keep your healthcare coverage active. Even if you don’t use any medical services or receive medical treatment in a month, you’ll still have to pay the monthly premium. A lower monthly premium often means having to pay more out-of-pocket for certain services or treatments. A higher monthly premium often means lower out-of-pocket costs if/when you need to pay for certain services or treatments.
The deductible is the total amount you will owe out of your pocket for medical care and services before your health insurance company begins to pay its share of your medical expenses. For example, if your deductible is $3,000, then your plan won’t pay for any medical services or treatments until you’ve already paid for $3,000 of covered medical services from your own bank account.
The deductible may not apply to all services, and these services are outlined in either the Plan Details or your health insurance certificate. Plans with lower monthly premiums tend to have much higher deductibles. Also important to note: Qualified preventive services are covered at 100% and you will not need to pay anything out-of-pocket.
A copay or copayment is a fixed amount you are required to pay for a covered healthcare service, usually on the same day you receive the service. The amount can vary by the type of covered healthcare service. For example, visiting a doctor may require a $30 copay while buying a generic prescription medication may cost you $20 copay. Often, you’re looking to pay the least amount in copayments, then you’ll likely find that those plans have a higher monthly premiums.
Many healthcare plans include coinsurance for specific medical services. Once you’ve reached your deductible (for example, if your deductible is $2,000 and you’ve already paid out-of-pocket a sum total of $2,000 for medical expenses) you and your insurer split your medical costs.
Unlike copay, the amount is unfixed and is rather calculated as a percentage. A coinsurance of 20%, for example, means that you pay 20% of the medical expenses for whatever service or treatment you received. If, say, your health insurance plan’s allowed amount for an office visit is $100 and you’ve met your deductible, your coinsurance payment of 20% would be $20; the health insurance plan pays the remaining 80% (or the remaining $80).
Out-of-Pocket Maximum / Out-of-Pocket Limit
The out-of-pocket maximum is literally the maximum amount that you’ll be required to pay out-of-pocket for your medical expenses in any given year. Once you hit the limit, then your plan is responsible for paying 100% for covered services.
Any and all payments you make towards your deductible, copays, and coinsurance go towards your out-of-pocket maximum; your monthly premiums are the only things not counted towards the out-of-pocket limit.
The out-of-pocket maximum is a consumer protection measure under the Affordable Care Act / Obamacare. Before the law’s implementation, health insurance plans weren’t required to put a cap on what they would need to spend on healthcare services and treatments. Previously, people undergoing extended treatments for things like cancer would find themselves with limitless medical bills.
Your health insurance company contracts with a large network of doctors, hospitals and clinics that creates an in-network system. These contracted doctors and facilities agree to accept special rates for procedures and services. Knowing the price of contracted medical services helps the insurance company control their costs, and helps them price their health insurance rates. The key is to stay in-network in order to minimize costs.
If you receive medical services outside of your in-network approved doctor or hospital facility, you will likely pay more for this out-of-network care. Medical providers outside of your network have not agreed to a set rate with your insurance company so the costs will be higher.
Your health insurance plan will also require higher deductibles, coinsurance and copays. Many times the cost is double that of your in-network costs. Some healthcare plans do not cover out-of network charges at all, so pay close attention to both in-network and out-of-network availability when shopping for a health insurance plan.
A tax subsidy is a form of financial assistance you can receive from the federal government to help pay for your health insurance costs. The amount of money you receive is based on your total income reported to the Internal Revenue Service (IRS) for the given year.
Health insurance subsidies are also known as the Advance Premium Tax Credit. When calculating your Obamacare tax subsidy, be sure to include all members of the household that are claimed as dependents as well as all income that will be reported to the IRS. It’s important to make sure your calculations are correct. If you miscalculate your income or have an increase in income after applying for your tax subsidy, you could be subject to repaying the amount of subsidy granted at tax time.
If you can afford to purchase health insurance but choose not to buy it for various reasons, you must either have a healthcare coverage exemption that is granted by the federal government or pay a fine on your income taxes for not carrying health insurance coverage. The fine or fee is also referred to as an “individual responsibility payment”, “individual mandate,” or more casually the “Obamacare penalty”.
Your Private Health Insurance Plan Options
Whether on the Obamacare exchange or off the exchange, private health insurance plans vary. The primary health plan types for consumers to understand are HMOs and PPOs. HMOs are generally less costly than a PPO equivalent, but there is a trade-off in terms of how health care coverage is managed. In addition to HMOs and PPOs, there are different types of hybrids between the two. You can read more in detail here.
Health Maintenance Organization (HMO)
An HMO is a popular type of plan. It’s generally less-costly, but the trade-off is that your care will be managed more by the insurance company. Choosing an HMO is opting for a lower financial cost and, in some ways, convenience. HMO plans usually require that members have a primary care physician as the main point-of-contact for medical care, and that members receive care within the plan’s network of providers.
Preferred Provider Organization (PPO)
A PPO is another popular type of health care plan. PPOs are generally costlier than HMOs. The benefit is that members will be able to see providers without getting approvals from a primary care physician. Members are financially motivated to stay in the insurer’s provider network, but can opt to go outside of it at higher out-of-pocket costs.
Exclusive Provider Organization (EPO)
An EPO is a hybrid between the HMO and PPO. EPOs are similar to a PPO in that members do not have to go through a primary care physician. However, EPOs are similar to an HMO in that members have to stay within the healthcare company’s provider network.
Point of Service (POS)
A POS is another kind of hybrid between the HMO and PPO. Like an HMO, members will need to have a primary care physician, who will refer them to specialists. Members have increased flexibility though, like those in a PPO plan, to go out-of-network.
Pricing by Metal Tiers
When shopping around for health insurance options, you’ll find that certain plans are sorted by varying metals (bronze, silver, gold, and platinum). The metal tiers will help guide you in understanding the split share between you and your insurer (how much the insurer will cover for your medical expenses versus how much you will cover out-of-pocket).
Bronze plans are the most inexpensive, but typically carry the highest out-of-pocket expenses. That means after the cost of your monthly premium, deductible, coinsurance and copayments, a Bronze plan pays 60% of your healthcare bills, and you are responsible for 40% of the costs.
Silver plans pay an average of 70% of your healthcare costs, which include monthly premium, deductible, coinsurance and copayments, and you are responsible for 30% of the costs.
Gold plans pay an average of 80% of all healthcare costs, including the monthly deductible, and you are responsible for an average of 20% of the costs.
The most versatile metal plan, Platinum plans pay an average of 90% of healthcare costs, leaving the policyholder with just 10% of the bill, on average.
Not a metal tier, but it’s an option that’s available. If you’re under the age of 30, then you qualify for catastrophic insurance. It’s a low-cost, high-deductible health insurance.
It’s a great option for healthy 20-somethings that don’t plan to use their health insurance for more than preventive care. It’s not eligible for a tax subsidy, so it’s smart to run a health insurance quote for both catastrophic plans and other plans to see if your income level qualifies you for less expensive insurance than what a catastrophic plan can offer.
When to Buy Health Insurance
If you’re not covered by an employer and you’re an individual or a family looking to enroll in a new health insurance policy, then you’re limited to enrollment during Open Enrollment Period (OEP). For coverage in 2018, the Open Enrollment Period is from November 1, 2017 to December 15, 2017.
If you don’t buy health insurance during OEP, you aren’t necessarily out of luck. There are certain life events that trigger a Special Enrollment Period (SEP), allowing individuals to enroll in a healthcare plan outside of the normal enrollment period. These circumstances are known as “qualifying life events”. A summary of what qualifies you for SEP can be found below: