Updated October 22, 2019
Buying individual health insurance is an emotional experience. You might feel pressured to buy it. You could be afraid you can’t afford the monthly payments. You are definitely irritated by the terms and phrases that don’t make sense. Plus, it takes too many hours to search, compare and apply for coverage.
Finding an affordable health insurance plan, whether it is permanent health insurance or temporary health insurance, can cause strife and worry.
Studies show Americans can be fairly incompetent at selecting plans based on financial needs and medical welfare. So bad, that when given the option of choosing between multiple plans with only one logical choice, about 80% of workers select the wrong health care plan. Yet some of these same consumer studies have found that we are getting better about making health care decisions, and our confidence has improved since the dawn of the Affordable Care Act.
The majority of Americans receive health insurance plans from their employer. Those who buy health care insurance on their own typically opt for an individual health insurance plan or a short-term medical insurance plan that provides coverage while they wait for the opportunity to buy permanent insurance. In either case, both types of insurance plans use terms and descriptions that are foreign to the average consumer. This guide is meant to help you better understand health insurance terms in everyday language so you can feel more confident about your decision.
Paying Your Health Care Plan Deductible
Like auto insurance, a health care plan has a deductible (a set dollar amount) you must pay before your health insurance company is responsible for footing the bill. Deductibles have come under fire since the launch of Obamacare because they are rising every year for individuals who purchase their own insurance. Your auto insurance deductible is usually fairly low, maybe $500 or $1,000. But a health insurance deductible for individuals averaged $5,700 for a Bronze plan (typically the lowest cost plan available) in 2016.
Health Care Plan Myth #1: Premiums Go Toward Deductible
Your monthly premium payment to your health insurance company does not help “pay down” your deductible. The monthly payment just keeps your insurance policy in force. As you begin to use health care, like going to the doctor or having a hospital stay, the cost of each bill will be deducted against your total deductible. As an example: If you have a $5,000 deductible, you will have to pay the first $5,000 of medical care out of your own pocket before your health insurance kicks in. (This does not take into account any copayments for office visits or other types of care.)
Copayment for Doctor Visits
Some health insurance plans have a copayment, also known as a copay for doctor visits. If you regularly see a physician or have several children who get sick throughout the year, finding a health care plan with doctor copays can save you money in the long run. Instead of having to pay for each visit out-of-pocket until you reach your deductible, you pay a flat copayment fee every time you see a doctor, which is usually less than the price of an office visit. Some short term medical insurance plans also have copays available for primary care doctors and specialists. If a copayment option is something desirable for your family, make sure to look for this type of benefit when shopping for an insurance plan.
Health Care Plan Myth #2: The Structure of Health Insurance Plans Hasn’t Changed
With the dawn of the Affordable Care Act, health care plans got slimmer to keep monthly costs more affordable. The “slimming” of health insurance resulted in benefits being removed from plans. Copayments are one benefit that was removed from lower-cost plans in addition to decreased doctor networks and higher deductibles. Don’t assume that the health insurance plan you purchase contains doctor copays. Review the details in depth and comparison shop your health care plans before purchasing.
How Coinsurance Works with Your Health Care Plan
If you have several medical incidents during the course of the year, such as three doctor visits and two hospitalizations, you can easily reach your health insurance deductible. Once you meet your deductible, you are home-free and your health insurance company will begin picking up the bills, right? Wrong. Health care plans include coinsurance, which means you are still responsible for paying a portion of your medical bills even after you have reached your insurance deductible. Most health insurance plans advertise “80/20” or “70/30” coinsurance with every plan. That means your health insurance plan will pay 70–80% of a medical bill, and you are responsible for 20–30% of the costs. Be sure to check what your coinsurance might be when shopping for plans.
Health Care Plan Myth #3: Once The Insurance Deductible is Met, Health Care is Free
When you reach your health insurance deductible, you aren’t off the hook when paying your medical bills. Coinsurance is designed to help alleviate some of the expense the health insurance carrier shoulders. There are also varying degrees of coinsurance levels. While individual health insurance plans typically have 80/20 or 70/30 coinsurance, some short-term medical insurance plans have 50/50 coinsurance, putting more responsibility for medical costs on the consumer. If you are looking for a temporary health insurance option for just a few months, short-term medical insurance can provide an affordable option. Higher coinsurance that requires you to take on more financial responsibility is usually lower in cost.
Using a Prescription Drug Deductible
Some medical insurance plans have a separate prescription drug deductible. These deductibles can greatly help individuals or families that have high prescription drug costs. Typically, drug deductibles are much lower than a medical deductible and operate separately from the general medical deductible. For example, you can have a health insurance plan with a $6,500 medical deductible and a $500 prescription drug deductible. If you see a doctor annually to renew three prescriptions, that office visit goes toward your medical deductible. However, your three prescriptions can go toward the $500 prescription drug deductible, which can be easy to hit during a full year, therefore keeping your overall drug costs lower than paying entirely out-of-pocket.
Health Care Plan Myth #4: Your Monthly Premium Pays Down Your Deductible Amount
A health insurance premium is the amount you pay each month to have health insurance. The monthly cost keeps your health insurance policy active and keeps you in good standing with your health insurance carrier. The monthly premium doesn’t go toward your deductible or any medical spending during the year. It is strictly the cost of your health insurance plan per month similar to paying a monthly rent.
What is a Health Care Plan Premium?
Jimmy Kimmel recently went out on the streets of New York to ask people what they thought about the news of health insurance premiums increasing in 2017. However, instead of implying a health insurance “premium” was a bad thing, his team of street reporters put a positive spin on the word “premium,” implying that “premium” was, in fact, a good thing for Americans. With the implication that “premium” was not a bad thing, person after person agreed that rising health insurance premiums were not only good for them, but good for the country overall. While not a scientific experiment, the obvious conclusion was Americans don’t know what a health insurance premium is.
Why Paying Attention to Your Out-of-Pocket Maximum Is Important When Buying
Many health insurance agents will advise any health care plan’s out-of-pocket maximum is the number you need to be most concerned about when shopping for a health insurance plan. This total figure is the maximum amount your health insurance company can bill after you have met your deductible and paid coinsurance. Note that your monthly premium does not go toward your out-of-pocket maximum. Typically, health care plans that cost more each month have a lower out-of-pocket maximum, and plans with a low monthly premium have a higher out-of-pocket maximum. In terms of purchasing a health care plan to gain catastrophic insurance coverage, the out-of-pocket maximum is an important number to focus on should you have an unexpected critical illness arise.
As an example: You can have a $6,500 deductible health care insurance plan with a $7,250 out-of-pocket maximum. That means you are responsible for paying no more than $7,250 for medical care during the year. To meet the $7,250 out-of-pocket maximum, you must first hit your $6,500 deductible, and then pay an additional $750 in coinsurance for medical care. If you hit the $7,250 threshold, your medical care after that point is paid at 100% (subject to copayments).
Health Care Plan Lifetime Maximum
Thanks to the Affordable Care Act, lifetime maximums have been removed from health insurance plans. In the past, policies were capped at a set dollar amount, which was detrimental for individuals with a chronic illness. Today there is no limit and individuals can receive medical care indefinitely, no matter the cost.
Short-term medical plans do contain a lifetime maximum since they are strictly a temporary solution for individual who needs a short-term solution between major medical health insurance plan coverage. The lower the lifetime maximum on a short-term medical insurance plan, the more affordable the coverage. For healthy individuals who need coverage for just a few months, the lower lifetime maximum policy can be the most affordable option. Here’s more about the myths and advantages of short term health insurance if you’d like to learn more.
It Pays to Understand Terms Before Buying Health Insurance
There are many factors to consider when buying an individual health care insurance plan or a temporary short-term insurance plan. Understanding the definitions of “insurance speak” and your explanation-of-benefits can greatly help you shop, compare and buy more effectively and efficiently.
To find an affordable short-term medical insurance solution while waiting for your major medical health care insurance to begin, visit Pivot Health today!