Health insurance is a scary topic for a lot of people. And the costs of health insurance can be even scarier. There are 4 main costs that you will incur with your health insurance that you should be aware of and how they work. Here they are.
Premiums
The first of the four costs of health insurance are insurance premiums.
Insurance premiums are usually pretty easy to understand. Premiums are simply the payment that you make toward your health insurance every month, every paycheck, etc.
If you see that $250 was taken out of your paycheck for health insurance, that was your premium.
If you see that $25 was taken out of your bank account for life insurance, that was your premium as well.
It’s important to note that you will have to pay your premiums no matter what. Even if you hit your out of pocket maximum for the year (we’ll talk about that in a minute), you will still have to pay your premiums.
Copays
The second of the costs of health insurance are copays.
This part of insurance is the topic of insurance copays. Sometimes this is also called coinsurance. Both terms mean the same thing and can be used interchangeably.
Focus on the first part of the word “copayments”. Co means together. So a copayment means that you and the insurance company will pay for the service together.
Most insurance companies have some sort of copayment structure. And the copayments are usually a flat dollar amount. They are usually $10-50.
You might have to pay a copayment when you see a specialist, have a minor surgery or something to that effect. You generally don’t have to make an insurance copay for an annual physical or a routine checkup.
But every insurance company and insurance plan is going to be different. Some insurance plans dictate that you have a copay any time you see a medical professional for any reason. While most others do not require copays as often.
So let’s say that you have to go to a cardiac doctor because you have been having chest pains. When you go into the office the entire bill might be $500. But you will likely have to pay your copay before you leave. You might have to pay something like $30 right then.
That is not to say that you won’t get a bill for the difference later. You likely will.
Think of it as the insurance company wanting you to have a little skin in the game. They want you to pay a little up front before they pay some (or all of the bill).
For the rest of the bill, you will likely have to pay it until you reach your deductible or max out of pocket.
Make sure to check your insurance plan to know what yours is.
Deductibles
The third of the costs of health insurance are deductibles.
This is the part about how health insurance works that gets most people fired up: deductibles.
Deductibles can be infuriating.
A deductible is the amount of money that you are responsible for paying BEFORE the insurance company steps in and starts paying anything. (This does not include preventative care.)
Preventative care will generally include things like:
- Annual check-up/physical
- Flu shot (and most other vaccinations)
- Mammogram
- Colonoscopy
- Blood pressure screening
- Well-woman visit
- STI screening
- Etc.
Deductible amounts range GREATLY. There are $0 deductibles, there are $20,000 deductibles, and amounts all inbetween. After you have paid your deductible the insurance steps in and pays a portion of the medical bills while you pay the rest.
While insurance plans can vary with what portion the insurance company pays and what portion the individual pays, a very common split is 80% that the hospital pays and you pay 20%. (Remember, this is AFTER you have already paid your deductible.
Here’s how it works:
Maggie has a health insurance plan that has a $4,000 deductible.
She has some health issues that pop up throughout the year and she has to go to the hospital three times.
The first time she goes the bill is $2,000.
The second time that she goes the bill is $1,500.
And the third time that she goes the bill is $500.
Here’s how the payment breakdown would be in this example:
| Amount Owed | Maggie Pays | Insurance Pays | Deductible Remaining | |
| Hospital Visit #1 | $2,000 | $2,000 | $0 | $2,000 |
| Hospital Visit #2 | $1,500 | $1,500 | $0 | $500 |
| Hospital Visit #3 | $500 | $500 | $0 | $0 |
After the third visit to the hospital, Maggie will have exhausted her entire deductible. That means that every dollar (up to the maximum out of pocket that I’ll explain in a later article) will be split between her and her insurance company. With most plans, she will pay 20% while her insurance company will pay 80%.
Let’s say that after Maggie’s third visit to the hospital, she has to go one more time and the bill is $1,000.
It would look like this:
| Amount Owed | Maggie Pays | Insurance Pays | Deductible Remaining | |
| Hospital Visit #4 | $1,000 | $200 | $800 | $0 |
It is also good to note that there is a direct inverse relationship between insurance premiums and deductibles.
Which is to say, the HIGHER the premium that you pay, the LOWER the deductible.
And the LOWER the premium that you pay, the HIGHER the deductible.
Also, your deductible will reset every year. If you have paid your full deductible on December 31st of the year, you will have a whole new deductible starting on January 1st.
One more thing.
An insurance deductible is not used for life insurance. It is typically used in health, dental, and (maybe) vision insurance.
Max Out of Pocket
The last of the costs of health insurance is the max out of pocket cost.
The next major part of how health insurance works is the max out of pocket that you can have.
I told you how a deductible works. After you have met your deductible, you will split each medical bill with the insurance company, usually on an 80/20 basis (meaning that the insurance company pays 80% of the bill and you pay 20% of the bill). You will do this until you have paid your out of pocket max.
Your out of pocket max is generally higher than a deductible, but not always. They can sometimes be the same as your deductible. The out of pocket max will never be lower than the deductible.
To show you how the out of pocket max works, let’s use Debbie as an example.
Let’s assume that Debbie’s max out of pocket expenses for the year is $10,000. That means that she will pay a MAXIMUM amount in a given year of $10,000 in health bills (not including her premiums). After she has met that maximum, the insurance company will pay 100% of all medical bills.
Debbie has to go to the hospital several times and has a $4,000 deductible and a $10,000 maximum out of pocket amount.
This is what her payments will look like throughout the year:
| Amount Owed | Tonya Pays | Insurance Pays | Deductible Remaining | Max Out of Pocket Remaining | |
| Hospital Visit #1 | $2,000 | $2,000 | $0 | $2,000 | $8,000 |
| Hospital Visit #2 | $2,000 | $2,000 | $0 | $0 | $6,000 |
| Hospital Visit #3 | $4,000 | $800 | $3,200 | $0 | $5,200 |
| Hospital Visit #4 | $4,000 | $800 | $3,200 | $0 | $4,400 |
| Hospital Visit #5 | $4,000 | $800 | $3,200 | $0 | $3,600 |
| Hospital Visit #6 | $4,000 | $800 | $3,200 | $0 | $2,800 |
| Hospital Visit #7 | $4,000 | $800 | $3,200 | $0 | $2,000 |
| Hospital Visit #8 | $4,000 | $800 | $3,200 | $0 | $1,200 |
| Hospital Visit #9 | $4,000 | $800 | $3,200 | $0 | $400 |
| Hospital Visit #10 | $4,000 | $400 | $3,600 | $0 | $0 |
Any subsequent medical bills that Tonya would have for that year would be 100% covered by her health insurance.
Most people won’t reach their maximum out of pocket amount. But you can quickly hit that amount if something really bad happens to you like a really bad car accident, cancer diagnosis, open heart surgery, birth of a child, etc.
Also, remember that this amount resets every year. So if Debbie hits her $10,000 max out of pocket amount on December 31st, she will have to start over on January 1st.
Final Thoughts
Those are the four main costs of health insurance that you need to be familiar with. A lot of people think that just because they have health insurance, they will have no medical bills or they will be simple to understand.
WRONG!
Health insurance in the United States is unnecessarily complicated, unnecessarily expensive, and unnecessarily cumbersome to navigate.
But it is what we have. So we might as well learn the rules to the game and how it works.
You can do it!
I am here for you!
Until next time!
0 Comments