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Medical bills can become a hefty expense without the proper coverage. In fact, CNBC reports that in 2018, “the average American household spent almost $5,000 per person on health care.” Depending on your family size and health needs, health expenses can really start adding up. Despite our fleeting feelings of invincibility, we are all susceptible to the illness and accidents that befall humankind.
Choosing the right health insurance policy for you and/or your family means better wealth management in the long-run. Assessing the health risk and financial security of your situation will help you in choosing a policy that’s right for you. However, before proceeding forward, you need to know the common language of health insurance.
We have answered four common questions pertaining to health insurance: what is a deductible, what is coinsurance, what is a copay, and what are out-of-pocket maximums.
Each insurance policy comes with a deductible. A deductible is the amount of medical costs you are responsible for paying before the insurance company chips in. For example, if your deductible is $2,000, then you need to pay $2,000 out-of-pocket for medical bills before the insurance company will start splitting the costs through methods like coinsurance.
The deductible amount is dependent on your level of risk and the cost of your premium. If you are paying a high monthly premium, then you are likely to have a low deductible and vice-versa. People who have a number of preexisting conditions may choose a lower deductible because they have a high risk of needing medical services. Healthy individuals may choose a higher deductible and a lower premium because they often do not meet their deductible requirement anyway.
In a family scenario, you might have two different deductibles—an individual deductible and a family deductible. Be sure to set aside money every year that could be used in the case that you may need to pay a deductible. A good way to store this money would be in an HSA, an emergency savings account, or whole life insurance cash values.
Once your deductible is met, the coinsurance will kick in and start splitting your medical bills. Coinsurance is often represented as a fraction such as 80/20 or 70/30. This fraction is representative of the amount you will cover and the amount your health insurance will cover for your medical costs. For example, if your coinsurance is 80/20, then your insurance provider would pay 80% of the bill and you would cover the 20%. In this scenario, if you had a $10,000 bill from the emergency room, you would pay $2,000 and your insurance company would pay $8,000 thanks to coinsurance.
Similar to your deductible, your coinsurance will be dependent on your health and the level of risk you are willing to take. If you enjoy high-risk activities and find yourself in the ER frequently, choosing a higher coinsurance could be advantageous to keep your costs low. You will continue to pay your coinsurance until you reach your out-of-pocket maximum.
Like coinsurance, copays are a way to split medical costs with your insurance provider. For certain medical services such as doctor visits or prescriptions, you will pay a copay instead of coinsurance. A copay is a fixed amount you pay to the medical provider after you receive service.
The major difference between coinsurance and copays is when you start using them. Coinsurance is only used after the deductible has been met. However, copays are effective the day you start your policy. For example, on January 1, you might get a routine check-up from your doctor that costs $200 dollars out-of-pocket. If your copay is $25 for doctor visits, then your insurance will pay the remaining $175. Also note that most policies will have both coinsurance and copays.
When you have met your out-of-pocket maximum, which is a limit on the amount of money you will pay through your deductibles, coinsurance, and copays combined. The insurance company will cover 100% of all medical costs for the remainder of the year. Keep in mind however that your out-of-pocket maximum will reset with each calendar year.
Another factor that could affect your deductibles, coinsurance, and copays is if you use services from in-network providers or out-of-network providers. Check with your insurance provider before going to see a specialist or getting a procedure done to make sure your service provider is in-network. Because insurance providers have special connections with certain doctors, hospitals, and service, the in-network costs are significantly lower than out-of-network costs.
If you have health insurance questions on deductibles, coinsurance, co-pays, or out-of-pocket maximums, or you’re wondering if you have the best health insurance, you can find out. McFie Insurance recommends a company called Take Command Health a health insurance provider that automatically shops health insurance companies to find the best plan for you. If you want to shop health insurance companies to find out if you have the best plan go here.
Ben T. McFie
There's a lot of confusion around finance; there's so much to know and it's frustrating when you don't know enough to make the best financial decisions. I like to bring clarity to financial matters so people can make good financial decisions that will help them live wealthier more fulfilling lives.
