Health insurance can help to protect your pocket from the high costs of medical services. But you already know why people use health insurance right? So the question is, how does health insurance work?
Health insurance exists in a number of plans and offers different levels of coverage so you can find one that fits your budget. Here is an example of a health plan:
So, let’s imagine that you are in a serious accident and your medical bills come to a total of $50,000. This total is for all care received from doctors and hospitals that are within your plan’s network. Here is a breakdown of your costs;
Annual deductible: $5,000
Coinsurance: 20%
Maximum annual out-of-pocket : $6,000
For this example, you would pay your deductible to the plan providers before the start of your plan. Then for all healthcare costs after this, you are required to pay 20% of the cost until you get to your annual out-of-pocket maximum which is $6,000. Once you have paid your $6,000, your health plan will pay the remainder of the cost of services that were rendered by medical personnel and facilities that fall under their partner umbrella.
So back to your $50,000 medical bills. In this scenario, you would pay $6,000 and your health insurance provider would cover the remaining $44,000.
TERMS AND CONCEPTS OF HEALTH INSURANCE
Coinsurance
This term refers to the percentage amount you pay for services that are covered by your plan. So if you pay 20% of your hospital stay or your doctor’s visit, your plan will pay the other 80%.
It is important to note that not all insurance plans offer coinsurance.
Copay
This is a flat fee you pay that goes towards covered care at the time that the service is performed. It is important to note that not all insurance plans require a copay.
Covered Costs
This refers to the services that are covered by your insurance plan. These can include:
- Medical Office Visits
- Medical Treatments
- Medical Office Tests
- Medical Supplies
- Medications
- Medical Services
If you are already on an insurance plan, you can find out what is covered by your contract by logging into your member site or checking your contract for a welcome kit that may have this information.
Deductible
This is the amount you have to pay over to your health insurance provider before your plan year begins.
Formulary
This is a list of medications that are covered by your plan. If you have a prescription for a drug that is not covered by your plan, you will have to pay the full price for this medication. This cost does not count towards your deductible nor does it count toward your out-of-pocket maximum.
Health Savings Account
Pre-tax contributions are made to an HSA account. These funds can be later used to pay for some of your health care costs that are covered. See how a health savings account (HSA) works.
Network
This refers to the doctors, hospitals, pharmacies, and other health care professionals that have signed a contract with your plan provider to service their members. You will hear them referred to as in-network providers or participating providers.
To get the most benefit from your health insurance plan, you should try, however possible, to get your medical services and products from those within your plan’s network. The providers and pharmacies within a network will differ from one network to another.
There are different types of networks. You will find that some plans have what is known as a focused network. This means only particular providers or pharmacies participate. When you visit a provider that is not a part of the plan network you will have to pay more and often have to pay the full cost for the care or medications you receive.
Out-of-pocket Maximum
This refers to the highest amount you will need to pay for your covered services in a year.
Premium
The monthly amount you pay for your health plan. Usually, a lower premium comes with a higher deductible and out-of-pocket maximum.
WHY YOU NEED HEALTH INSURANCE
Americans need health insurance to prevent them from paying the high costs that are associated with healthcare. Unless you are very wealthy or over the age of 65, you will typically need health insurance coverage. Because of course, the wealthy can afford to pay high amounts for medical care and those that are over the age of 65 have Medicare coverage.
Those who are very poor may also be eligible for Medicaid in some instances. It is recommended that everyone else purchase health insurance, or they may run the risk of making themselves bankrupt through medical bills that have piled up.
Because health insurance is so common nowadays, many individuals have lost sight of its purpose. In the same way, you find it important to have insurance for your home or your car, it is important to protect your bank account from the costs that are associated with medical care, whether it is an emergency, an accident, or a chronic disease.
HOW TO CHOOSE HEALTH INSURANCE
There are a lot of choices when it comes to health insurance companies. Before you choose a plan, you have a number of things you are going to have to look at so you can compare your different options. Here are some of the things to pay attention to when selecting your health insurance provider.
- Monthly Premiums – You will pay this even if you never make a claim. This is how insurance companies earn an income and have the cash flow for their everyday expenses.
- Deductible – This is the amount you will pay before the insurance company will pay over any money for your services or medications. A deductible is an annual fee and so you have to pay this fee at the beginning of each year.
- Co-Pay – This refers to the amount of money that you pay at each visit. Typical co-pays are around $20 to visit your primary caregiver in their office. When it comes to a hospital visit, the typical copay is approximately $50 and for prescriptions, you can look at paying $10 to $40. You will pay 100% of the costs of your visits until you have met your annual deductible.
- Co-insurance – This is the percentage you pay for surgeries, hospital stays, or procedures. If your primary caregiver comes to see you in a hospital, you may pay co-insurance for the hospital visit and a co-pay for your doctor’s visit.
WHY INSURANCE COMPANIES CHARGE SO MANY FEES
Insurance companies charge co-insurance, co-pays, and deductibles. Why so many fees? We can speculate that they don’t want you to run to your doctor every time you have a sniffle. If they offered 100% of your healthcare costs, then their costs would be very high.
You are however protected by the Affordable Care Act which ensures that out-of-pocket costs are kept below a certain maximum for each year. For 2020, the maximum for individuals was $8,150 after which the insurance company pays out their contributions.
With so many choices, choosing health insurance can be a complicated task. You may notice that you may have to compromise to get the best deals. For example, you may have to pay a higher monthly premium so that your deductible or coinsurance percentage can be lowered. This is a sensible approach for those who have chronic diseases that require regular visits to their primary care providers.
In contrast, those who are relatively healthy and who don’t go to the doctor very often will want to pay a lower premium and are willing to take on a higher deductible. Because the chances of them going to a doctor are small, they can take the chance of paying more for health care deductibles. This has been an underlying flaw in the health insurance system.
WHY WE RELY ON HEALTH INSURANCE
Most Americans before World War II did not have health insurance. The policies that did exist back then only offered coverage for room and board at a hospital. When the war ended, the federal government, in an effort to curb inflation, instituted a wage freeze. This meant that companies could not give even their best employees a raise. So they tried to offer other benefits, health insurance being one of those.
The IRS in 1954 allowed health insurance premiums to be non-taxable. This means one additional dollar of health insurance was more valuable than one dollar of a worker’s taxable salary. With this tax break alone, the United States deficit increased by $273 billion just last year in 2019. It is not being removed since politicians know they are not likely to be re-elected if they remove the tax break.
When you look at it, this tax break is pretty much like the government offering the wealthy and the upper-middle-class a government insurance subsidy. When the Tax Policy Center looked into the numbers, it was revealed that the average tax break from health insurance was approximately $254 for households in the 12% tax bracket. Those in the 22% tax bracket benefited approximately $347.
ALTERNATIVES TO HEALTH INSURANCE
Other countries use what is known as universal health care. This means their government pays for health care in the same way they would pay for defense. For us, that would be like expanding Medicaid and Medicare so that it would be available to everyone.
In Canada, the government foots most of the bill when someone goes to the hospital or to a doctor. The only problem is that sometimes there is a wait time for seeing a specialist or to receive non-emergency surgeries. But at the end of the day, one does not have to worry about dying because they can’t afford healthcare.
There were attempts to introduce universal health care in America in the form of Hillarycare, which was defeated by health insurance companies and medical professionals. Obamacare was later presented as a universal health care option initially, but the goal was changed by different politicians and interest groups.
Access to health care today is an American Dream. Research shows that those with higher incomes tend to have better health. As such, inequality in income has led to inequality in health care.
HOW HEALTH INSURANCE IN THE UNITED STATES WORKS
It is not a secret that health care can be very expensive in the United States. One doctor’s visit can cost several hundreds of dollars and a three-day stay in a hospital can cost tens of thousands. Without health insurance, most of us could not afford to get sick. Thanks to health insurance, we can afford healthcare costs.
Typically, you have to pay upfront to receive health insurance benefits from a health insurance provider. A lot of people subscribe to the same company and all the upfront payments pool.
Since we tend to be healthy most of the time, all the premiums paid are used to cover the expenses of the small amount of those who do get sick or injured and need care.
The insurance companies have studied risk and know how to collect premiums that will cover the medical costs of the enrollees that actually do use their insurance benefits.
There are multiple health insurance plans in the United States, and they will have different arrangements and rules. Here are three questions you want to consider when choosing health insurance coverage.
- Where can I receive care?
Insurance providers control their costs by influencing access to providers. So they will have a number of people within their network and these are the providers that enrollees must go to for reimbursement from the insurance company. Otherwise, enrollees have to pay the full amount to their healthcare provider at the time of the service.
So if you have a plan through your parents and you move out of town for college, healthcare coverage may not be available within network providers for you in your new town.
- What does the plan cover?
The affordable care act has introduced more standardization to the benefits that health insurance plans offer. Before the benefits varied largely from plan to plan. There are a number of essential health benefits that must be covered by health insurance plans. These include:
- Hospitalization
- Emergency services
- Laboratory tests
- Outpatient care
- Prescription drugs
- Preventive services like immunizations and management of chronic diseases
- Pediatric services
- Rehabilitation services
- Mental health and treatment for substance abuse
- Maternity and newborn care
If you are an international student considering coverage through a plan that is not based in the US, this question is an imperative one.
- What are the related costs?
Insurance costs are quite a complicated topic. Above we spoke about the different fees and what you can expect them to be. We also gave an example to help you get a better understanding of how it all works. Unfortunately, there are additional costs for a lot of plans. Just remember that the more you pay in your upfront premium, the less you will have to pay to access healthcare when you need it, and vice versa. You have to choose the option that is right for you.
Hopefully, we covered your question, how does health insurance work? Are you covered? Are we a part of your provider’s network? Whatever your questions are at this point, we would love to hear from you. Contact us today.