Intro To Insurance: Health Insurance

Intro To Insurance: Health Insurance

Health insurance helps to protect you from not being able to afford the health care you need and from the extreme financial burden of paying for 100% of your health care out of pocket. Under the Affordable Care Act, all health insurance policies must cover 10 essential health benefits. In addition, everyone is required to carry basic health insurance or pay a fine (see Minimum Essential Coverage and Who Is Exempt.) Things could change under the Trump administration, but for now, those are the rules. (Learn more in What If Obamacare Is Repealed? and Trump, Healthcare and Insurers: What Comes Next?)

You can purchase group health insurance through your employer, if your employer offers health insurance as a benefit. These plans sometimes offer better coverage than what you could afford on your own since the employer covers a large percentage of the plan’s premiums and you pay only a small share, which is deducted from your paycheck pretax. You can also buy health insurance through the health insurance marketplace, also known as the exchange, directly from an insurance company, or through a health insurance broker who shops around for plans on your behalf. (Check out Individual vs. Group Health Insurance: What's the Difference?, How to Shop for Health Insurance and Top 5 Health Insurance Providers for the Self-Employed.)

If you purchase health insurance through the exchange, you will be eligible to receive income-based subsidies that help make your premiums more affordable. (Read Cutting Your Cost for Marketplace Health Insurance.) You must enroll in a health insurance plan during open enrollment unless you experience a qualifying life event such as getting married or having a child. (Learn more in Getting Health Coverage Outside Open Enrollment.)

In addition to covering the 10 essential health benefits – doctor’s office visits, hospitalization, emergency services, laboratory services, mental health services and addiction treatment, rehabilitative services and devices, pediatric services, prescription drugs, and preventive wellness and chronic disease treatment, and maternity and newborn care – each category’s specific covered services may vary based on state requirements and based on the specific insurer and plan. For example, some plans may cover acupuncture and chiropractic treatment, but others may not (See Essential Health Benefits Under the Affordable Care Act and 6 Things Obamacare Plans Won’t Cover).

As a health insurance policyholder, these are the costs you will be responsible for.

Premiums: Your insurance premium is the monthly fee you pay for health insurance. This fee will vary based on your age, state, insurer and how comprehensive the plan’s coverage is. It will not vary based on your health status.

Deductible: Your deductible is the amount you must pay out of pocket before your insurance company will start paying a percentage of your bills. Your premiums do not count toward your deductible.

Co-insurance: Coinsurance is the percentage of your bill that you are responsible for after meeting your deductible. For example, if your plan provides 80% coinsurance and your health care provider sends you a bill for $200, your insurance company will pay 80% of the bill, or $160, and you will pay the remaining 20%, or $40. Coinsurance is generally associated with PPO plans (more on those in a minute). Coinsurance is more generous when you see an in-network provider and less generous when you see an out-of-network provider. You might have 80/20 coinsurance in network and 60/40 coinsurance out of network.

Co-payment: A co-pay is a fixed dollar amount that you pay for visiting a health care provider or purchasing a prescription. Co-payments are generally associated with HMO plans. (For related reading, see 20 Ways To Save On Medical Bills.)

Out-of-pocket maximum: The out-of-pocket maximum or out-of-pocket limit is the most you will pay toward your health care bills each year before your insurance company takes over and pays 100% of your remaining bills. Your out-of-pocket maximum may not come into play in a typical year when you are healthy, but it can be a lifesaver if you get sick and require lots of treatment. Premiums do not count toward the out-of-pocket maximum, but deductibles, coinsurance and copayments do.

Why get insurance when you still have so many expenses? Because without insurance, your worst-case scenario is that you can’t afford the treatment you need and you die, or you try to afford it for a while but end up declaring medical bankruptcy. Doctors will not see you unless you can pay up front for their services. With insurance, your responsibility for medical expenses is capped to several thousand dollars a year – an amount that some people will still not be able to afford, but that many will. (For more, see How Health Insurance Helps Manage Financial Risk and When Health Insurance Doesn’t Cover Your Bills.)

The level of each type of expense you’ll be responsible for depends on what type of plan you have. In general, the more you pay in premiums, the less you’ll pay for care, and the less you pay in premiums, the more you’ll pay for care. (For related reading, see Choose Among Bronze, Silver, Gold And Platinum Health Plans.)

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