Sunday, 6 October 2019

What Is Health Insurance and How Does It Work?

Health Insurance

Understanding your health insurance plan can be a challenging task. The different insurance terms can be confusing and leave you with a headache. Fortunately knowing these terms can give you the confidence to understand your plan. 

There are 5 terms that are very important to understand your plan. 


  1. Network
  2. Premium
  3. Deductible
  4. Copay and Coinsurance
  5. Out-Of-Pocket Maximum

Let's get started


Network

Your insurance company has a group of preferred providers that are in-network. Using physicians and hospitals in your insurance companies' network will keep your out-of-pocket costs lower.

Some plan has lower benefits or no benefits at all for services provided outside of their network.


Premium

Your premium is the amount you pay to the insurance company each month to keep your coverage active. It is similar to the premium you pay to keep your car insurance each month. The amount of premium you pay determines the plan coverage and the out-of-pocket expense you can expect. 

For instance, a high premium could mean lower out-of-pocket expenses for medical services. Likewise, a lower premium could mean higher out-of-pocket expenses for medical services.


Deductible

This is the amount you pay each year before your health plan starts to pay for a portion of your services. For example, if you have a $1,500 bill for your medical expenses, and your plan has a $500 deductible. The first $500 paid towards the bill would be your responsibility.

This $500 payment meets your deductible, your insurance company would then pay their portion of the remaining $1,000 balance.


Copay and Coinsurance

Copay can sometimes be confused with co-insurance. But they are not the same thing.

Copay is the fixed amount you pay in advance each time you have a service, usually at the front desk.

Co-pays do not typically go towards your deductible, while coinsurance is an amount you pay after meeting your deductible. 

Let's revisit the last example. 

After meeting your $500 deductible, your insurance will be making a percentage of payment toward your medical expenses based on your plan's co-insurance rate. Coinsurance is a term used exclusively by medical insurance companies.

If you have a 10% coinsurance rate, the remaining portion of your bill that would be your responsibility after meeting your deductible would be 10% of the $1,000, balance for $100. The remaining $900 would be paid by your insurance company. 


Out-Of-Pocket Maximum

Not including your monthly premium payments, your plan has a limit of how much financial responsibility you are expected to bear in healthcare costs for a given year. 

Let's revisit our ongoing example

The plan as a $1,000 out-of-pocket maximum. You have so far paid your $500 deductible, your $100 coinsurance, and $25 copay. This means you have paid $625 total towards your out-of-pocket maximum for the year

Once you reach your out-of-pocket maximum, your insurance company will pay the approved services at 100% of their cost. 



I hope you understand all this information. It might seem confusing for some people. But I will try to make a full review on it like I did on Understanding Travel Insurance - Travel Insurance Full-Review

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