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Health Insurance 101

Health insurance policies and plans can be extremely confusing. Patients probably ask me as many insurance questions as they do personal health questions. Unfortunately, patient literacy about health insurance is generally low. For such a large expense, it really should be better understood. Now, please don’t misunderstand– I am not an expert on health insurance plans and probably have as many questions as the next person but I hope to just explain the basics that I think everyone should know.

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Health insurance is a product you purchase which will help cover the cost of medical expenses for a defined term (usually a year). Sounds like an easy concept, right? Wrong. What does it mean to “cover the cost”? Which “medical expenses”? That’s where it gets tricky.

First, your insurance doesn’t always cover your costs 100%. In fact, it usually does not cover your cost 100%. Your insurance company usually agrees to share costs with you until a certain point– that point is generally a dollar amount called your “out of pocket (OOP) max limit”, meaning the amount of money that comes “out of your own pocket” NOT INCLUDING the monthly insurance plan payments (your “premium”). Once you have paid enough money to hit your OOP max expense, then your insurance plan will cover your costs 100%.

But it takes some time, oh and money, to reach your out of pocket maximum. (By the way, the absolute MOST any insurance company can set as the OOP max is set by the federal government). Where does that money come from… the money that will be used to pay down your OOP max limit?

Annual Deductible. This is the amount of money that must be paid (again, NOT including your monthly premiums) before the insurance company will begin to cover some or even all of the subsequent costs of healthcare. Remember, through all of this, the amount of money coming out of your own pocket (whether it’s before or after the deductible is met) is being applied towards your maximum OOP expense. The amount of the deductible is set by your insurance company and varies by product. “High deductible” plans tend to have lower monthly premiums but “Low deductible” plans tend to have the higher monthly premiums. Some patients who feel as if they are relatively healthy and infrequent consumers of medical care often opt for low premium payments and the high deductible plans so that they can keep more money in their pocket each month and hopefully save money. The gamble is that if there does happen to be a need for expensive medical care during the terms of the coverage (think car accident or new mole that needs to be biopsied or unexpected emergent surgery like an appendectomy), you are now going to be expected to pay much more of your own money to meet the higher deductible limit before the insurance will start sharing costs. The reverse is true for high premium, low deductible plans.

Copayments. This amount goes towards your deductible as well as towards your OOP max limit. The copayment is a fixed amount applied to a covered service which could be an office visit, a prescription, a diagnostic test like an x-ray. Often, insurance plans will negotiate different deals with different medical providers, laboratories, diagnostic service centers. Those that have made good deals with the insurance company will then be listed as “in network” providers. Services obtained from these in network providers will have the most attractive prices for patients thus encouraging the majority of patients to stay “in network”. “Out of network” providers do not have negotiated contracts with that insurance carrier; they offer the same services but generally at less attractive prices for patients. Patients are certainly allowed to use any provider they would like but in-network providers have lower copayments for each service provided (each office visit, each lab visit, each xray) versus out of network providers. When it comes to prescriptions, the terminology is a little different. Rather than referring to medications as in network or out of network, medications are placed in a tiering system. Tier 1 drugs are generally the least expensive and tier 4 drugs are the more expensive. Some drugs are not covered at all by the insurance carrier, thus the patient is expected to pay the full cash price of the medication.

Coinsurance. This is also another confusing term and concept. Coinsurance only applies AFTER you have met the deductible but before the OOP max has been met. So, let’s say that your deductible is $2000 and your OOP max is $4000. Once you have met your $2000 deductible through copays and prescription costs, the coinsurance begins. This means that the insurance company will begin sharing more of the cost of medical care … but still not all of the cost. Generally, it is referred to as a percentage of the cost covered for example it may be 80/20 meaning that the insurance will cover 80% of whatever the cost is for a particular service but you are still going to be expected to pay 20% of that cost. The coinsurance will continue until the OOP max has been met and then generally the insurance will then cover total cost of care. As you can imagine though, OOP maximums are set fairly high so by the time you have made your monthly premium payments, paid all of your copayments and prescription medications, paid all of the coinsurance and finally made it to the OOP max, you have seen a lot of your money leave your pocket BEFORE insurance will start covering costs completely.

Open enrollment for the majority of people happens around this time of year. The specific dates of open enrollment can vary (Medicare open enrollment may be different than job-based open enrollment and still both can be different than marketplace enrollment). Generally speaking though, open enrollment season is usually the last two months of the year for new coverage to start on January 1 of the following year. During an open enrollment period, US Citizens are open to enroll in a health insurance plan. Most will usually opt to continue his/her current insurance policy, but many insurance plans will require you to opt back in since the terms of the previous year’s insurance coverage will automatically end. On the other hand, open enrollment is a time where you may also want to explore other insurance plan options and decide if another is a better choice for you and your family. If you do not sign up for a health insurance plan during this period, you will not be allowed to sign up for health insurance for the year unless there is a qualifying life changing event (i.e. job loss, significant geographic move, change in marital status, death of spouse, new baby).

Now the most important question: Which one is the right insurance plan? I don’t know. I don’t think anyone really knows. But with the enormous expense of health insurance, it’s important to arm yourself with as much knowledge to make the process of choosing your policy less overwhelming.

Great white shark. Acrylic. Painted during Shark week 2019 😂

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