4 Terms to Understanding Your Health Insurance

Signing up for your health benefits for the first time can be confusing. You have enough pressure with starting a new job. We help you break down some key terms to take the confusion and stress out of deciding what health care plan to select.
Health Insurance for anesthesiologist CRNA

The first time I sat down to sign up for my benefits most of it might as well have been in a different language. There was a lot of clicking back and forth between the application and looking up terms in Google. Eventually, I gave up. I needed to talk to some of my new coworkers about what certain things meant and what they signed up for this year, especially when it came to health insurance.

What I found was most people I worked with weren’t 100% sure about the definitions of certain terms or how they all fit together to provide health coverage. The most common answer I received was, “Well, I always sign up for this plan and it seems to do a good job.”

When it comes to your money, you need to know what you are signing up for when picking a healthcare plan. Don’t be caught off guard by medical bills because you didn’t know what you were buying. Understanding your health insurance can be a little confusing, but once you break down these four terms it helps make sense of when you pay out of pocket and the cost when you need healthcare.

Deductible: The amount you pay each year for healthcare before your insurance plan starts paying. For example, a $1000 deductible means you pay the first $1000 for covered services before your plan starts covering some of the cost. Co-pays generally do not go towards your deductible.

Co-pays: The fixed amount you pay each time for a covered service. If your co-pay is $20, then you will pay $20 at the time of service. Not all plans have a co-pay.

Co-insurance: The percentage of cost you pay for services after your deductible has been met. Let’s say you have an 80/20 plan. That means you are responsible to cover 20% of the cost of the bill. For example, if you have a $100 bill you would pay $20 and your insurance plan would pay $80. Remember, this only applies once you’ve reached your deductible.

Out-of-pocket maximum: The most you have to pay for covered services in a plan year. Once you have spent this amount on deductibles, co-pays, and co-insurance, your health plan pays 100% of all covered expenses for the rest of the plan year. So if your max out-of-pocket is $5000, once you spend that amount on deductibles, co-payments and co-insurance, the plan will pay 100% of covered costs for the remainder of the year.

Making sense of it all
Taking the numbers above we will use them for our healthcare plan example:
Deductible = $1,000, Co-pay = $20, Co-insurance = 20% and Out-of-pocket max = $5,000.
You just started your new anesthesia job on January 1. Your healthcare plan is active and you are ready to work, but then there is a series of unfortunate events.

January 15 – It’s flu season and the flu shot didn’t work. Now you are at the doctor’s office. Your co-pay is $20 and is paid as soon as you walk through the door. The doctor checks you out, makes their recommendation and sends you on your way. A week later you receive a bill for $150 and you pay it in full. That $150 goes towards your deductible and reduces it from $1,000 to $850.

February 15 – You step off a curb the wrong way and twist your ankle. You visit your orthopod and pay the $20 co-pay at registration. You are diagnosed with a sprained ankle and receive a bill in the mail for $850. You pay it in full and now you have met your deductible. Your deductible was $1,000 and between the two bills, $150 and $850, you have now paid the full amount towards it. Finally, your plan will start kicking in some money.

March 15 -Since you were recovering from a sprained ankle, you starting favoring your right leg more and wake up one morning with a swollen knee. Back to the orthopod, another $20 co-pay, and this time a hefty $2,000 bill. You have already met your deductible so now your co-insurance kicks in and you are responsible for 20%. You write a check for $400 and the health plan pays $1,600.

April 15 – If you thought March’s bill was bad, it’s Tax Day and things just got worse. You hit your head hard after a bad fall and spend 48 hours in the hospital for diagnostic tests and observation. You paid $20 for your co-pay and receive a final bill of $30,000. Your coinsurance is 20%, so you would owe $6,000. This is where things get really interesting.

Remember your out of pocket maximum is $5000. This year you have already paid $1480 out pocket ($20+$150+$20+$850+$20+$400+$20=$1480).

So, $5000-$1480= $3520 is all you would pay of the new bill because you will have reached your maximum out-of-pocket expenses. That means the plan will pay the remaining $26,480.

Hopefully, moving forward there will be no more doctor visits. However if there are, your healthcare plan will now cover 100% of expenses. So get out there and go crazy. At least now you understand what your health insurance will cover and what you are financially responsible for when a bill shows up.

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